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 …rm to analyze how provisioning rules inuence loan market uctuations. We show that a backward-looking provisioning system ampli…es the pro-cyclicality of loan market uctuations. 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 uctuations does not exist. Our results support the recent call of the Basel Committee for the implementation of a forward-looking provisioning system to address procyclicality. JEL classi…cation: G21 anonymous referees for their helpful comments. The usual disclaimer applies.

Keywords: loan market; provisioning system; pro-cyclicality (search for similar items in EconPapers)
Date: 2012
Note: View the original document on HAL open archive server: https://hal.science/hal-01098957
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Citations: View citations in EconPapers (52)

Published in Journal of Financial Stability, 2012, 8, pp.25 - 31. ⟨10.1016/j.jfs.2011.04.001⟩

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Journal Article: Provisioning rules and bank lending: A theoretical model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01098957

DOI: 10.1016/j.jfs.2011.04.001

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