'Loan Loss Provisioning Rules, Procyclicality, and Financial Volatility'
Interactions between loan loss provisioning rules and business cycle fluctuations are studied in a dynamic stochastic general equilibrium model with credit market imperfections. With a backward-looking provisioning system, provisions are triggered by past due payments, which, in turn, depend on current economic conditions and the loan loss reserves-loan ratio. With a forward-looking system, both past due payments and expected losses over the whole business cycle are accounted for, and provisions are smoothed over the cycle. Experiments show that holding more provisions can reduce the procyclicality of the financial system. However, a forward-looking provisioning regime can increase or lower procyclicality, depending on whether holding more loan loss reserves translates into a higher or lower fraction of nonperforming loans. A credit gap-augmented Taylor rule, coupled with a backward-looking provisioning system may be quite effective at mitigating real and financial volatility
Year of publication: |
2013
|
---|---|
Authors: | Agénor, Pierre-Richard ; Zilberman, Roy |
Institutions: | School of Economics, University of Manchester |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Supply Shocks and the Cyclical Behaviour of Bank Lending Rates under the Basel Accords
Zilberman, Roy, (2012)
-
'Financial Regulation, Credit and Liquidity Policy and the Business Cycle'
Bratsiotis, George J., (2014)
-
'Sudden Floods, Macroprudential Regulation and Stability in an Open Economy'
Agénor, Pierre-Richard, (2015)
- More ...