The use of a bank manager's discretion in the timing and amount of loan loss provisions and loan charge-offs can falsely understate the losses and

Question

Quizplus · Accepted Answer

By delaying or reducing the loan loss provisions and charge-offs, the bank manager can improve the bank's capital adequacy ratio by overstating the amount of available capital. This practice, however, can obscure the true extent of the bank's losses and create the illusion of stability and financial health, which can ultimately lead to riskier lending practices and potential insolvency.

The Use of a Bank Manager's Discretion in the Timing