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Dynamic Loan Loss Provisioning

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  • International Monetary Fund

Abstract

This simulation-based paper investigates the impact of different methods of dynamic provisioning on bank soundness and shows that this increasingly popular macroprudential tool can smooth provisioning costs over the credit cycle and lower banks’ probability of default. In addition, the paper offers an in-depth guide to implementation that addresses pertinent issues related to data requirements, calibration and safeguards as well as accounting, disclosure and tax treatment. It also discusses the interaction of dynamic provisioning with other macroprudential instruments such as countercyclical capital.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/110.

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Length: 59
Date of creation: 01 May 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/110

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Postal: International Monetary Fund, Washington, DC USA
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Web page: http://www.imf.org/external/pubind.htm
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Keywords: Macroprudential Policy; Latin America; Bank soundness; Banks; Capital; Credit risk; capital adequacy; capital adequacy ratio; banking; dividend payout; banking system; payout ratio; probability of default; banking sector; capital requirement; bank capital; income statement; bank solvency; accounting standard; bank managers; banking regulation; loan loss provision; risk aversion; equity capital; bank profits; tier 2 capital; capital regulation; credit expansion; banking supervision; tier 1 capital; bank data; mortgage lending; capital markets; monetary authority; bank risk; return on assets; banking risks; banking operations; bank of spain; bank risk-taking; bank loan; accounting treatment; bank provisioning; banking system fragility; securities commissions; bank size; banking supervisors; bank regulators; capital increases; banking systems; bank capital regulation; reserve requirement; moral hazard; bank performance; macroeconomic stability; banking crisis; bank crisis; bank lending; bank policy; international accounting standard; central banking; bank losses; loan loss reserve; banking market; bank supervisors; banking sectors; minimum capital requirement; prudential regulation; capital standard; capital standards; bank systems; bank for international settlements;

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References

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  1. Rafael Repullo & Javier Suarez, 2013. "The Procyclical Effects of Bank Capital Regulation," Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 452-490.
  2. Paolo Angelini & Andrea Enria & Stefano Neri & Fabio Panetta & Mario Quagliariello, 2010. "Pro-cyclicality of capital regulation: is it a problem? How to fix it?," Questioni di Economia e Finanza (Occasional Papers) 74, Bank of Italy, Economic Research and International Relations Area.
  3. Marco Burroni & Mario Quagliariello & Emiliano Sabatini & Vincenzo Tola, 2009. "Dynamic provisioning: rationale, functioning, and prudential treatment," Questioni di Economia e Finanza (Occasional Papers) 57, Bank of Italy, Economic Research and International Relations Area.
  4. José L. Fillat & Judit Montoriol-Garriga, 2010. "Addressing the pro-cyclicality of capital requirements with a dynamic loan loss provision system," Risk and Policy Analysis Unit Working Paper QAU10-4, Federal Reserve Bank of Boston.
  5. Fabio Panetta & Paolo Angelini & Ugo Albertazzi & Francesco Columba & Wanda Cornacchia & Antonio Di Cesare & Andrea Pilati & Carmelo Salleo & Giovanni Santini, 2009. "Financial sector pro-cyclicality: lessons from the crisis," Questioni di Economia e Finanza (Occasional Papers) 44, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. 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.

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