Provisioning rules and bank lending: A theoretical model

Vincent Bouvatier and Laetitia Lepetit

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Abstract: This paper develops a partial equilibrium model of a banking firm to analyze how provisioning rules influence loan market fluctuations. We show that a backward-looking provisioning system amplifies the pro-cyclicality of loan market fluctuations. We demonstrate that, in a forward-looking provisioning system where statistical provisions are used to smooth the evolution of total loan loss provisions, the issue of pro-cyclicality of loan market fluctuations does not exist. Our findings support the call for the implementation of a dynamic provisioning system.

Keywords: loan market; provisioning system; pro-cyclicality (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (52)

Published in Journal of Financial Stability, 2012, 8 (2), pp.25-31. ⟨10.2139/ssrn.1148314⟩

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Journal Article: Provisioning rules and bank lending: A theoretical model (2012)
Working Paper: Provisioning rules and bank lending: A theoretical model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00785520

DOI: 10.2139/ssrn.1148314

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