A new set of accounting rules was designed to make banks recognize credit losses earlier, but recent events suggest it might not be working as planned. Despite the changes, commercial real estate loans are showing troubling signs of trouble, with a massive $1.5 trillion in loans coming due soon. Office buildings, hit hard by the pandemic and plummeting values, are especially problematic. While the new rules were supposed to catch losses sooner, some banks are still slow to report problems. This raises questions about whether the new system is any better than the old one, and whether we might be in for another financial mess.

After the big financial crash, when many banks had to get government help despite looking financially healthy, America decided it was time to change how banks report their losses. They wanted a system that would make banks acknowledge losses sooner.

The old system was called the "incurred-loss model." This meant that banks had to be pretty sure—about 70%...