The Procyclicality of Expected Credit Loss Provisions

Javier Suarez and ,
Authors registered in the RePEc Author Service: Jorge Abad

No 13135, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Great Recession has pushed accounting standards for banks' loan loss provisioning to shift from an incurred loss approach to an expected credit loss approach. IFRS 9 and the incoming update of US GAAP imply a more timely recognition of credit losses but also greater responsiveness to changes in aggregate conditions, which raises procyclicality concerns. This paper develops and calibrates a recursive ratings-migration model to assess the impact of different provisioning approaches on the cyclicality of banks' profits and regulatory capital. The model is used to analyze the effectiveness of potential policy responses to the procyclicality problem.

Keywords: Credit loss allowances; Expected credit losses; Incurred losses; Rating migrations; Procyclicality (search for similar items in EconPapers)
JEL-codes: G21 G28 M41 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-acc and nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
https://cepr.org/publications/DP13135 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The Procyclicality of Expected Credit Loss Provisions (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13135

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13135

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().