Loan loss provisioning and economic slowdowns : too much, too late?
Only recently has the debate on bank capital regulation devoted specific attention to the role that bank loan loss provisions can play as part of a minimum capital regulatory framework. Several national regulators have adopted or are planning to introduce a cyclically adjustable requirement for loan loss provisions, and the Basel Committee on Banking Supervision is considering how to provide adequate treatment to provisioning practices within a broad bank capital regulatory framework. The authors contribute to the ongoing debate by exploring the available evidence about bank provisioning practices around the world. They find that in the vast majority of cases banks tend to delay provisioning for bad loans until it is too late-when cyclical downturns have already set in-possibly magnifying the impact of the economic cycle on the income and capital of banks. Notwithstanding the considerable variation in the patterns followed by banks around the world, Laeven and Majnoni find that the size and timing of provisions tend to improve with the level of economic development.
|Date of creation:||31 Dec 2001|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joe Peek & Eric S. Rosengren, 1991.
"The capital crunch: neither a borrower nor a lender be,"
91-4, Federal Reserve Bank of Boston.
- Peek, Joe & Rosengren, Eric, 1995. "The Capital Crunch: Neither a Borrower nor a Lender Be," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 625-38, August.
- Joe Peek & Eric Rosengren, 1993. "The Capital Crunch: Neither A Borrower Nor A Lender Be," Boston College Working Papers in Economics 243, Boston College Department of Economics.
- Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
- Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
- Santiago Fernández de Lis & Jorge Martínez Pagés & Jesús Saurina, 2000. "Credit Growth, Problem Loans and Credit Risk Provisioning in Spain," Working Papers 0018, Banco de España;Working Papers Homepage.
- Allen N. Berger & Richard J. Herring & Giorgio P. Szego, 1995.
"The role of capital in financial institutions,"
Finance and Economics Discussion Series
95-23, Board of Governors of the Federal Reserve System (U.S.).
- Holmstrom, Bengt & Tirole, Jean, 2000. "Liquidity and Risk Management," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 295-319, August.
- Larry D. Wall & Timothy W. Koch, 2000. "Bank loan-loss accounting: a review of theoretical and empirical evidence," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-20.
- Raghuram G. Rajan, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 399-441.
- Chiuri, Maria Concetta & Ferri, Giovanni & Majnoni, Giovanni, 2001.
"The macroeconomic impact of bank capital requirements in emerging economies - past evidence to assess the future,"
Policy Research Working Paper Series
2605, The World Bank.
- Concetta Chiuri, Maria & Ferri, Giovanni & Majnoni, Giovanni, 2002. "The macroeconomic impact of bank capital requirements in emerging economies: Past evidence to assess the future," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 881-904, May.
- Maria Concetta Chiuri & Giovanni Ferri & Giovanni Majnoni, 2000. "The Macroeconomic Impact Of Bank Capital Requirements In Emerging Economies: Past Evidence To Assess The Future," SERIES 0002, Dipartimento di Scienze economiche e metodi matematici - Università di Bari, revised Sep 2000.
- Fudenberg, Drew & Tirole, Jean, 1995.
"A Theory of Income and Dividend Smoothing Based on Incumbency Rents,"
Journal of Political Economy,
University of Chicago Press, vol. 103(1), pages 75-93, February.
- Tirole, Jean & Fudenberg, Drew, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Scholarly Articles 3160494, Harvard University Department of Economics.
- Fudenberg, Drew & Tirole, Jean, 1994. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," IDEI Working Papers 34, Institut d'Économie Industrielle (IDEI), Toulouse.
- Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57 Bank for International Settlements.
- Anand Mohan Goel & Anjan V. Thakor, 2004.
"Why Do Firms Smooth Earnings?,"
- Kim, Daesik & Santomero, Anthony M., 1993. "Forecasting required loan loss reserves," Journal of Economics and Business, Elsevier, vol. 45(3-4), pages 315-329.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Timothy W. Koch & Larry D. Wall, 1999. "Banks' discretionary loan loss provisions: how important are constraints and asymmetries?," Proceedings 618, Federal Reserve Bank of Chicago.
- Allen N. Berger & Gregory F. Udell, 1993.
"Did risk-based capital allocate bank credit and cause a credit crunch in the U.S.?,"
Finance and Economics Discussion Series
93-41, Board of Governors of the Federal Reserve System (U.S.).
- Allen Berger & Gregory Udell, 1994. "Did Risk-Based Capital Allocate Bank Credit and Cause a `Credit Crunch' in the U.S.?," Center for Financial Institutions Working Papers 94-07, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
- Ahmed, Anwer S. & Takeda, Carolyn & Thomas, Shawn, 1999. "Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 1-25, November.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2749. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.