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Dynamic provisioning: a buffer rather than a countercyclical tool?

Santiago Fernandez de Lis and Alicia Garcia-Herrero
Authors registered in the RePEc Author Service: Alicia Garcia Herrero

No 1222, Working Papers from BBVA Bank, Economic Research Department

Abstract: This paper analyzes whether dynamic provisioning systems act as a dampener -as intended- or as a buffer. After briefly reviewing the literature, we explain the rationale for dynamic provisions and analyze the experience of three of the few countries that adopted them: Spain, Colombia and Peru. We conclude that in the case of Spain, which is the only one where dynamic provisions worked over a complete cycle, the fact that market discipline only operated in the downturn implied that the system acted more as a buffer than as a dampener. We also observe that even rule-based systems tend to be applied in a discretionary way, since they require a very reliable calibration of the cycle \\\"ex ante\\\", an assumption that has proven unrealistic. The comparison of the Spanish system versus the Peruvian and Colombian raises interesting policy conclusions on whether dynamic provisioning should be applied differently to industrial versus emerging countries.

Keywords: financial stability; macroprudential; anticyclical (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2012-10
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Dynamic Provisioning: A Buffer Rather Than a Countercyclical Tool? (2013) Downloads
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