 Loan loss provisions of European banks – Does macroprudential tightening matter?Małgorzata Olszak, Christophe Godlewski, Sylwia Roszkowska and Dorota Skała Research in International Business and Finance, 2025, vol. 73, issue PB Abstract: In this paper, we study the relation between macroprudential policy and loan loss provisioning policy of European banks between 1996 and 2019. We analyse both the level of loan loss provisions (LLP) and their use in income smoothing by banks. Overall, we demonstrate that macroprudential tightening actions are associated with changes in LLP policy. Banks decrease their LLP when macroprudential policies are tightened and this result is particularly strong under Basel III. In parallel, we find that macroprudential tightening exacerbates income smoothing in the pre-Basel III period and diminishes it under Basel III. Links between LLP policy and macroprudential policy strongly depend on the category of tools that are being tightened. In particular, instruments relating to provisioning standards are associated with increased LLP, while lower LLP are observed when a tightening occurs in tools connected with taxes on financial institutions and activities. Keywords: Macroprudential policy; loan loss provisions; income smoothing; policy tightening; EEA (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:73:y:2025:i:pb:s0275531924004355 DOI: 10.1016/j.ribaf.2024.102642 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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