Do Dynamic Provisions Enhance Bank Solvency and Reduce Credit Procyclicality? a Study of the Chilean Banking System

Jorge Chan-Lau

No 2012/124, IMF Working Papers from International Monetary Fund

Abstract: Dynamic provisions could help to enhance the solvency of individual banks and reduce procyclicality. Accomplishing these objectives depends on country-specific features of the banking system, business practices, and the calibration of the dynamic provisions scheme. In the case of Chile, a simulation analysis suggests Spanish dynamic provisions would improve banks' resilience to adverse shocks but would not reduce procyclicality. To address the latter, other countercyclical measures should be considered.

Keywords: WP; provision; loan; bank; dynamic provision; Dynamic provisions; procyclicality; simulation; banks; Chile; provision buffer; countercyclical provision rule Peru; regimes process; loan loss; buffer shift; provision cycle; provisions regime; Loans; Credit; Bank solvency; Domestic credit; Global (search for similar items in EconPapers)
Pages: 21
Date: 2012-05-01
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Citations: View citations in EconPapers (16)

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