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Credit Quality, Bank Provisioning and Systematic Risk in Banking Business

In: Bank Risk, Governance and Regulation

Author

Listed:
  • Josanco Floreani
  • Maurizio Polato
  • Andrea Paltrinieri
  • Flavio Pichler

Abstract

Managerial behaviour and accounting policies have a huge impact on corporate earnings and their information content. Reporting of non-performing loans and loan-loss provision (LLP) practices are among the major concerns in the banking industry. Asset quality, exposure to credit risk and provisioning bear great implications in relation to earnings volatility and capital adequacy. Managers may rely on discretionary provisioning as a means of smoothing earnings. While there is a large debate in literature about the incentives to discretionary LLP, there is no doubt that such a practice might hinder the true riskiness of the bank and distort market perceptions. In the same vein, discretionary provisioning may be regarded as a tool for optimizing a bank’s capital.

Suggested Citation

  • Josanco Floreani & Maurizio Polato & Andrea Paltrinieri & Flavio Pichler, 2015. "Credit Quality, Bank Provisioning and Systematic Risk in Banking Business," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Elena Beccalli & Federica Poli (ed.), Bank Risk, Governance and Regulation, chapter 1, pages 1-34, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-53094-3_1
    DOI: 10.1057/9781137530943_1
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    Cited by:

    1. Karolina Puławska, 2022. "Effects of the bank levy introduction on the interbank market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 844-864, January.
    2. Alin-Marius Andries & Florentina Melnic & Simona Nistor, 2018. "Effects of Macroprudential Policy on Systemic Risk and Bank Risk Taking," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(3), pages 202-244, July.

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