The International Accounting Standards Board (IASB) is warning of a reduction in bank lending because of conservative attitudes to finance that have taken hold in the US encouraged by a bad loan provisioning model being developed there.

In a speech delivered at the Federation of European Accountants (FEE) conference on future corporate reporting held in Brussels, IASB chairman Hans Hoogervorst referred to 'serious, unintended consequences' in relation to the loss provisioning model which expects 'lifetime losses on day-1'.

'A model that leads to day-1 expected losses across the board could also have serious, unintended consequences. When earnings are depressed, cutting back on new lending (and thus avoiding day-1 losses) would be a very easy way for banks to boost their profits. Bank lending might become even more pro-cyclical than already is the case,' he said.

He added that a model based on day-1 losses will be highly subjective, even when it is based on historical statistics.

'Such statistics can indeed be very treacherous, as both the American and Spanish mortgage markets have shown. Minor tweaks in lifetime expected losses can have a very big impact on earnings. The temptations of earnings management will be hard to resist,' said Hoogervorst.

In his speech, The Concept of Prudence: dead or alive? Hoogervorst said he accepted that 'hidden reserves can easily turn into hidden losses' and this problem contributed to the financial crisis, but argued that 'the old definition of prudence, stressing caution while warning against cookie jar accounting, was spot on.'

The comments are likely to do little to improve the stand-off that has developed between the US's Financial Accounting Standards Board (FASB) and IASB, following meetings between the two standard setters in the summer.