Countercyclical prudential buffers and bank risk-taking

Manuel Illueca, Lars Norden, Joseph Pacelli and Gregory F. Udell

Journal of Financial Intermediation, 2022, vol. 51, issue C

Abstract: We investigate the effects of countercyclical prudential buffers on bank risk-taking. We exploit the introduction of dynamic loan loss provisioning in Spain, mandating that banks use historical average loss rates in their estimation of loan loss provisions. We find that dynamic loan loss provisioning is associated with reductions in timely loan loss provisioning. Banks that previously recognized loan losses in a timely fashion exhibit the greatest reductions in timeliness and consequently extend loans to riskier borrowers with lower accounting quality. Our results have policy implications for the debate on the use of financial reporting requirements in mitigating capital pro-cyclicality.

Keywords: Banks; bank regulation; macro-prudential policy; bank lending; loan loss provisioning (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:51:y:2022:i:c:s1042957322000146

DOI: 10.1016/j.jfi.2022.100961

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