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 in...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/12/1671257/loan-loss-provisioning-economic-slowdowns-too-much-too-late http://hdl.handle.net/10986/19410 |
| Summary: | 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. |
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