FOR nearly a decade Spain has resisted the received wisdom, and European regulations, on accounting. In 2005 the European Union required all of its members to adopt IFRS, the dominant accounting standard outside America. One of the biggest changes between the new rules and many of the national guidelines that preceded them was a ban on banks writing down the value of their loans in anticipation of future losses, a practice some had abused to disguise volatility in their earnings. Instead, IFRS imposed a strict “incurred-loss” method, in which debt was valued at par until a borrower actually stopped paying.

While nodding at the new rules, Spain in practice retained its old ones. Its banks, more than those of any other European country, had tended to wait until the last possible moment to recognise bad loans, amplifying the ups and downs of the credit cycle. Its central bank was therefore keen on the sort of smoothing of losses that IFRS was trying to eliminate: in 2000 it had forced banks to adopt “dynamic provisioning”, making bigger writedowns in boom times and smaller in bad.

The financial crisis tested both systems, and revealed flaws in each. Because banks elsewhere in Europe could not write down their loans based on the deteriorating economic environment, their quarterly results failed to reflect the full horror to come, to investors’ cost. In contrast, Spanish banks had been forced to make extra provisions during the good years, and so weathered the collapse of Lehman Brothers relatively well. In 2009 Britain’s Financial Services Authority recommended changing IFRS to follow Spain’s lead.

However, the provisions required under the Spanish system were based on historical averages, in effect assuming that all downturns would be of a similar scale. When the euro crisis dealt Spain a second blow in 2010, the banks’ buffers had already been depleted. Many went bust.

With these lessons in mind, the International Accounting Standards Board (IASB), which oversees IFRS, this week issued revised rules. It has replaced the incurred-loss method with an “expected-loss” approach similar to Spain’s. But rather than adjusting loan-loss provisions by a fixed proportion on the basis of past economic cycles, the new standard lets the banks determine how much to write off. They will take an immediate charge when making a loan for any losses they forecast over the next year. If the odds of repayment subsequently fall substantially, the lender must register a new write-down for the probable losses over the loan’s entire lifetime. The new system is scheduled to take effect in 2018. The American counterpart to the IASB is working on a similar rule.

In the short term, affected banks will focus on setting up computer systems to generate the necessary loss estimates, and on determining how the change will affect their compliance with financial regulation. According to a recent survey by Deloitte, a big accounting firm, the new method is expected to increase loan-loss provisions by around half. That could force some banks, already struggling to comply with the stricter capital requirements imposed since the crisis, to raise even more money.

But in the long run banks may try to twist the system to their benefit. The new standard does require them to back up their accounting choices with much more evidence than the pre-IFRS rules did. Nonetheless, it still gives them broad leeway to decide when a loan is looking parlous enough to register an expected loss. Predicting the magnitude of losses is also a subjective matter. Since the crisis regulators have generally given bankers less discretion to interpret the rules, not more.