Professor Eamonn Walsh:

The rule IAS No. 39 says that one should not book an impairment until one has objective evidence of an actual loss. There is, however, nothing to prevent a financial institution from saying it has losses coming down the road, and in the interests of presenting a true and fair view to its shareholders, it might make an additional allowance for those expected losses. It would not conform with international accounting standards but it could be something a financial institution could do - Anglo Irish Bank did so in 2008. In its annual financial report Anglo Irish Bank put in an additional provision of €0.5 billion. There is nothing to prevent a bank putting in an additional provision, albeit being against the rules. There is a big body of rules and if one goes against the rules people will ask what it is that is being tried here.

Alternatively, one could have a disclosure which says the impairments are low, the profits are high, and loans have been made which could go bad quite quickly. A disclosure could be made to investors which states that loans may get into difficulty despite the fact they are not reflected in the balance sheet or the income statement.