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Provisioning rules and bank lending: A theoretical model

Author

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  • Vincent Bouvatier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Laetitia Lepetit

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

This paper develops a partial equilibrium model of a banking …rm to analyze how provisioning rules inuence loan market uctuations. We show that a backward-looking provisioning system ampli…es the pro-cyclicality of loan market uctuations. We demonstrate that, in a forward-looking provisioning system where statistical provisions are used to smooth the evolution of total loan loss provisions, the issue of pro-cyclicality of loan market uctuations does not exist. Our results support the recent call of the Basel Committee for the implementation of a forward-looking provisioning system to address procyclicality. JEL classi…cation: G21 anonymous referees for their helpful comments. The usual disclaimer applies.

Suggested Citation

  • Vincent Bouvatier & Laetitia Lepetit, 2012. "Provisioning rules and bank lending: A theoretical model," Post-Print hal-01098957, HAL.
    • Handle: RePEc:hal:journl:hal-01098957
    DOI: 10.1016/j.jfs.2011.04.001
    Note: View the original document on HAL open archive server: https://hal.science/hal-01098957
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    More about this item

    Keywords

    loan market; provisioning system; pro-cyclicality;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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