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We investigate how provisioning models a¤ect bank regulation. We study an accuracy vs. timeliness trade-o¤ between an incurred loss model (IL) and a current expected credit loss model (CECL). Relative to IL, CECL improves e¢ ciency by enabling timely intervention to curb ine¢ cient ex post asset-substitution even though the imprecise information of CECL entails false alarms. However, from a real e¤ects perspective, our analysis uncovers a potential cost of CECL: banks respond to timely intervention by originating riskier loans so that timely intervention induces timelier risk-taking. By appropriately tailoring regulatory capital to information about credit losses, the regulator can improve the e¢ ciency of CECL. In particular, we show that regulatory capital under CECL would be looser when early estimates of credit losses are su¢ ciently precise and/or risk-shifting incentives are not too severe. From a policy perspective, our analysis suggests that better coordination between standard setters and bank regulators could enable the latter to relax capital requirements in order to spur lending.

How can features of the markets for audit and nonaudit services (NAS) affect an audit firm's incentives to invest in audit quality, average audit quality, and social welfare? We address these questions in a model focusing on competition in both audit and NAS markets. We show that, when audit and NAS demand are positively correlated, prohibiting auditors from providing NAS to audit clients leads to higher investments in audit quality, but can decrease average audit quality if marginal clients switch to lower quality auditors. The effect on social welfare can be positive or negative, depending on the distribution of clients' service demands. General bans on auditor provision of NAS can, via similar channels, increase or decrease audit quality and social welfare. Overall, our findings suggest a more nuanced view of how regulating an auditor's provision of NAS might affect audit quality and social welfare,

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