Provisions as part of the own funds

Can provisions that are made against loss events in the past (i.e. previous accounting periods) be used as a capital substitute to cover future losses? Are these provisions available with a high degree of certainty?

Article 322(2)(a) CRR requires institutions to "c alculate its own fund requirement as comprising both expected and unexpected loss, unless expected loss is adequately captured in its internal Business practices ". The Delegated Regulation 2018/959 provides more guidance in Article 33(d), where it states " that the offsets the Institution allows for expected loss in each operational risk category are capital substitutes or that they are otherwise available to cover expected loss with a high degree of certainty over the one-year period. " Provisions are required by the applicable accounting standards, when the institution has good reason or believe, that it has a financial obligation to fulfil. Unlike for other liabilities, there remains a limited amount of uncertainty about the exact amount or the exact time of a required payment. From a balance sheet perspective, this is money put aside to cover for these liabilities. Even though there are cases in which provisions are corrected or completely closed (and therefore the financial means can later become available again), they are for the time being the best estimate of the unspecified payment obligation and therefore a liability.