The upcoming change in the US to account for credit losses — Current Estimate of Credit Losses or CECL — will lead to a difference between US and global accounting standards. This may lead to some banks shifting assets between subsidiaries to get the most favorable short-term accounting treatment. This is discussed by Risk.net in ‘Foreign banks may move US loans overseas to skirt CECL.’
Of course, this doesn’t change the overall economics which is what accounting should reflect. But the global accounting bodies have taken a different approach to determine loan loss reserve requirements.
It’s conceivable that banks could game the accounting rules. Let’s say during a good year assets were booked in the US subsidiary with a higher reserve level. In an off year assets could be shifted to a foreign subsidiary freeing up reserves, effectively booking a gain. In a really good year the process could be reversed to increase reserve levels to help balance out profits.
One way to address this would be to require disclosure of asset sales between subsidiaries with an estimate of the accounting impacts. Or regulators could simply apply extra scrutiny to the practice which might discourage it completely. We'll need to wait a few years until the new accounting standards take effect to see if this is an imagined or real problem.