Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?
AbstractMost explanations of the crisis of 2007-2009 emphasize the role of the preceding boom in real estate and asset markets in a variety of advanced countries. As a result, an idea that is gaining support among various groups is how to make Basel II or any regulatory regime less procyclical. This paper addresses the rationale for and likely contribution of such policies. Making provisioning (or capital) requirements countercyclical is one way potentially to address procyclicality, and accordingly it looks at the efforts of the authorities in Spain and Colombia, two countries in which countercyclical provisioning has been tried, to see what the track record has been. As explained there, these experiments have been at best too recent and limited to put much weight on them, but they are much less favorable for supporting this practice than is commonly admitted. The paper then addresses concerns and implementation issues with countercyclical capital or provisioning requirements, including why their impact might be expected to be limited, and concludes with recommendations for developing country officials who want to learn how to make their financial systems less exposed to crises.
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Bibliographic InfoPaper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2009-06.
Length: 37 pages
Date of creation: Dec 2009
Date of revision:
Other versions of this item:
- Gerard Caprio, Jr, . "Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?," The Institute for International Integration Studies Discussion Paper Series iiisdp311, IIIS.
- Caprio, Gerard, Jr., 2010. "Safe and sound banking : a role for countercyclical regulatory requirements ?," Policy Research Working Paper Series 5198, The World Bank.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-BAN-2010-09-25 (Banking)
- NEP-REG-2010-09-25 (Regulation)
- NEP-RMG-2010-09-25 (Risk Management)
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