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Do Dynamic Provisions Enhance Bank Solvency and Reduce Credit Procyclicality? a Study of the Chilean Banking System

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  • Jorge A. Chan-Lau
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    Abstract

    Dynamic provisions could help to enhance the solvency of individual banks and reduce procyclicality. Accomplishing these objectives depends on country-specific features of the banking system, business practices, and the calibration of the dynamic provisions scheme. In the case of Chile, a simulation analysis suggests Spanish dynamic provisions would improve banks'' resilience to adverse shocks but would not reduce procyclicality. To address the latter, other countercyclical measures should be considered.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/124.

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    Length: 21
    Date of creation: 01 May 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/124

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    Related research

    Keywords: Banks; Capital; Financial risk; banking; calibration; bank solvency; equation; statistics; probability; banking supervision; descriptive statistics; kurtosis; time series; accounting standard; correlation; standard deviation; probability distributions; skewness; banking system; probabilities; bank of spain; mortgage lending; banking systems; loan loss provision; bank insolvency; accounting treatment; equations; retained earnings; bank capital; bank losses; bank provisioning; banking regulatory agency; bank of england; statistic; horizontal axis;

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    1. Marco Burroni & Mario Quagliariello & Emiliano Sabatini & Vincenzo Tola, 2009. "Dynamic provisioning: rationale, functioning, and prudential treatment," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 57, Bank of Italy, Economic Research and International Relations Area.
    2. Jacob A. Bikker & Paul A.J. Metzemakers, 2003. "Bank Provisioning Behaviour and Procyclicality," DNB Staff Reports (discontinued), Netherlands Central Bank 111, Netherlands Central Bank.
    3. Guillaume Plantin & Haresh Sapra & Hyun Shin, . "Marking to Market: Panacea or Pandora’s Box ?," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2005-E4, Carnegie Mellon University, Tepper School of Business.
    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, Federal Reserve Bank of Boston QAU10-4, Federal Reserve Bank of Boston.
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    Cited by:
    1. Athanasoglou, Panayiotis P. & Daniilidis, Ioannis & Delis, Manthos D., 2014. "Bank procyclicality and output: Issues and policies," Journal of Economics and Business, Elsevier, Elsevier, vol. 72(C), pages 58-83.

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