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Instruments for Curbing Fluctuations in Lending over the Business Cycle

In: CNB Financial Stability Report 2008/2009

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Author Info

  • Jan Frait
  • Zlatuse Komarkova

Abstract

This article sets out to discuss instruments for reducing procyclical bank lending behaviour. Special attention is given to how much the regulatory framework contributes to the procyclicality of the financial system. The main subject of the article is the dynamic provisioning regime currently under discussion as one of the possible regulatory responses to the ongoing global financial crisis. The analysis reveals that Czech banks are among those that provision in a procyclical manner. On the theoretical level, therefore, dynamic provisioning could in the Czech economy help create a buffer during good times which could then be used during recessions. On the practical level, however, dynamic provisioning would for numerous reasons be difficult to introduce and would first need to be aligned with the other components of the international framework for the regulation of financial institutions.

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Bibliographic Info

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This chapter was published in: Jan Frait & Zlatuse Komarkova CNB Financial Stability Report 2008/2009, , chapter Thematic Article 1, pages 72-81, 2009.

This item is provided by Czech National Bank, Research Department in its series Occasional Publications - Chapters in Edited Volumes with number fsr0809/1.

Handle: RePEc:cnb:ocpubc:fsr0809/1

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References

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  1. Laeven, Luc & Majnoni, Giovanni, 2003. "Loan loss provisioning and economic slowdowns: too much, too late?," Journal of Financial Intermediation, Elsevier, vol. 12(2), pages 178-197, April.
  2. Jacob A. Bikker & Paul A.J. Metzemakers, 2003. "Bank Provisioning Behaviour and Procyclicality," DNB Staff Reports (discontinued) 111, Netherlands Central Bank.
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Cited by:
  1. Adam Gersl & Petr Jakubik, 2010. "Procyclicality of the Financial System and Simulation of the Feedback Effect," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2009/2010, chapter 0, pages 110-119 Czech National Bank, Research Department.
  2. Frait, Jan & Gersl, Adam & Seidler, Jakub, 2011. "Credit growth and financial stability in the Czech Republic," Policy Research Working Paper Series 5771, The World Bank.
  3. Jan FRAIT & Zlatuše KOMÁRKOVÁ, 2013. "Loan Loss Provisioning in Selected European Banking Sectors: Do Banks Really Behave in a Procyclical Way?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(4), pages 308-326, August.
  4. Jan Frait & Zlatuse Komarkova, 2011. "Financial Stability, Systemic Risk and Macroprudential Policy," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2010/2011, chapter 0, pages 96-111 Czech National Bank, Research Department.

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