* IASB confirms will not follow U.S. model
* IASB simplifies loan-loss proposal
LONDON, March 7 (Reuters) - Banks must make provisions on souring loans much sooner under a book-keeping rule that would apply a key lesson from the financial crisis to protect taxpayers.
Under existing accounting rules banks are not required to make provisions until a loss has occurred or there is clear evidence of impairment that passes a certain threshold.
The 2007-09 financial crisis showed that was far too late, when it then proved impossible for banks to raise fresh capital during the market meltdown, forcing them into firesales of assets that worsened the turmoil and ushered in state bailouts.
Leaders of the world's 20 major economies (G20) asked the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) in 2009 to come up with a single global rule that recognises losses far earlier so that banks have more time to act.
The IASB published its latest draft on Thursday, simplifying an earlier version to make it easier to apply while still ensuring more timely loss recognition, chairman Hans Hoogervorst said.
But investors face potential confusion in comparing banks from the more than 100 countries that use IASB rules, including the European Union, with those from the United States.
Last year, FASB decided to go its own way, saying it wanted to recognise all potential losses on loans upfront on day one, a step Hoogervorst said the IASB would not follow.
The IASB's revision "avoids excessive front-loading of losses which we think would not properly reflect economic reality," Hoogervorst said.
The IASB had proposed three "buckets" for determining the extent of provisions but the latest draft whittles them down to two.
A threshold for when losses have to be recognised has also been scrapped, meaning there would always have to be some provisioning on loans from day one.
For loans and financial instruments where there has been no significant credit deterioration, provisioning is limited to the likely loss over the coming 12 months.
For those instruments where there has been a significant deterioration, then provisions totalling the expected full loss have to be made.
The IASB draft is out for public consultation to July and asks for feedback on when the new rule could come into force.
FASB published its own draft rule in December which might force banks to boost loan-loss reserves by half.