Abstract
This study investigates prudential regulation under the current expected credit losses (CECL) model in accounting for loan loss provisioning. We highlight the dual role (valuation role and regulatory role) of the CECL accounting in deriving the optimal regulatory leverage ratios, which integrate (1) the dual role of banks (liquidity provision to households and credit supply to the real sector); (2) the reward and risk attributes of loan portfolio composition; and (3) procyclicality and countercyclicality.
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