Cummings, James R and Durrani, Kassim Jahn, Effect of the Basel Accord Capital Requirements on the Loan-Loss Provisioning Practices of Australian Banks (January 2014). Available at SSRN: http://ssrn.com/abstract=2396384

“This study examines the role of regulatory loan-loss provisioning in supporting current developments in Australian regulatory capital requirements. Findings suggest banks current regulatory capital position is a determining factor in management’s discretion over reported levels of regulatory loan-loss provisions. Banks with relatively lower regulatory capital positions tend to restrict provisioning to future periods when capital position has been sufficiently rebuilt. In the post Basel II implementation period, Australian banks reporting under the standardised approach continue to exhibit this behaviour, whilst banks reporting under the internal ratings-based (IRB) approach show no relationship between regulatory capital and provisioning. IRB banks instead report regulatory provisions consistent with the expected loss estimates of internal capital models as intended under the Basel II framework.”