Modelling interconnection between provision under IFRS9 and countercyclical capital buffer

Abstract

Impairment recognition according to the International Financial and Reporting Standards changed significantly in 2018 with the introduction of IFRS 9. In this paper I am modelling the interconnection between provision under the new IFRS 9 standard and countercyclical capital buffer of prudential regulation. The recently introduced IFRS 9 impairment model is closely related to the economic cycle. I am modelling the effect of macro environment to the allowance and going to compare it with regulatory mechanism of countercyclical capital buffer.