By identifying and examining the potential discretionary components ofTaiwan's commercial bank loan loss provisions (LLPs) and securities gains andlosses (RSGs), this study aims at exploring these banks' accruals managementpractices. Robust against various sensitivity tests, our empirical findingssupport the notion that commercial banks strategically increase their LLPs toavoid unfavorable capital adequacy ratios. On the other hand, we find thesebanks smooth reported earnings via RSGs. Moreover, our evidence is consistentwith the hypothesis that LLPs and RSGs serve as substitutes for each other incommercial bank accruals management. However, the extent these banks exercisediscretion via either measure varies with domestic capital market performance.For tests in this study, the specification of simultaneous equations outperformsthe competing ordinary least square regression models. Most evidently, theconventional models assume that other potential smoothing variables areexogenous. This limitation would lead to regression errors of inconsistency whendiscretionary accruals are simultaneously determined. In contrast, withstatistical evidence that our potential accruals management measures substituteeach other, simultaneous equations model appears to be a more appropriate tool.This study also provides an innovative design for estimating bank loan lossprovisions. As compared with competing designs, our model, which relatescommercial bank LLPs to non-performing assets, unsecured loans, accruedacceptances and prior-period loan loss provisions, produces a more efficientpredictor for Taiwan's commercial bank LLPs.