How binding is supervisory guidance? Evidence from the European calendar provisioning

Franco Fiordelisi, Gabriele Lattanzio and Davide Salvatore Mare
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Franco Fiordelisi: Universita' Roma 3 and University of Essex
Gabriele Lattanzio: Nazarbayev University, Graduate School of Business

No 2022/05, Working Papers from Nazarbayev University, Graduate School of Business

Abstract: We examine whether banks respond differently to the adoption of a supervisory guidance as compared to a similar regulatory action. By exploiting the staggered and distinct supervisory and regulatory implementation of the European Calendar Provision, we indeed document that while this reform achieved the intended overall goal of reducing European banks' nonperforming loans ratios, its effect materialized during the initial release of the ECB supervisory guidance, rather than following its adoption as a Pillar 1 regulation. That is, the subsequent formalization of this supervisory initiative within a regulatory framework achieved limited economic results, while eliminating any residual flexibility for the regulatory authority concerning the degree to which the calendar provisioning should be enforced.

Keywords: Bank regulation; Cross-border financial institutions; Financial stability; non-performing loans (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2022-05
New Economics Papers: this item is included in nep-cba, nep-cfn, nep-eec and nep-reg
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