Macroprudential policy instruments and procyclicality of loan-loss provisions – cross-country evidence

Małgorzata Olszak, Iwona Kowalska () and Sylwia Roszkowska ()
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Iwona Kowalska: Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland
Sylwia Roszkowska: Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland, Poland

No 42016, Faculty of Management Working Paper Series from University of Warsaw, Faculty of Management

Abstract: We analyze the effectiveness of various macroprudential policy instruments in reducing the procyclicality of loan-loss provisions (LLPs) using individual bank information from over 65 countries and applying the two-step GMM Blundell-Bond (1998) approach with robust standard errors. Our research identifies several new facts. Firstly, borrower restrictions are definitely more effective in reducing the procyclicality of loan-loss provisions than other macroprudential policy instruments. This effect is supported in both unconsolidated and consolidated data and is robust to several robustness checks. Secondly, dynamic provisions, large exposure concentration limits and taxes on specific assets are effective in reducing the procyclicality of loan-loss provisions. And finally, we find that both loan-to-value caps and debt-to-income ratios, are especially effective in reducing the procyclicality of LLP of large banks. Off-balance-sheet restrictions, concentration limits and taxes are also effective in reducing the procyclicality of LLP of large banks. Dynamic provisions reduce the procyclicality of LLP independently of bank size.

Keywords: macroprudential policy; loan-loss provisions; business cycle; procyclicality (search for similar items in EconPapers)
JEL-codes: E32 G21 G28 G32 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2016-12
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.wz.uw.edu.pl/portaleFiles/5630-Faculty% ... kowalska_%281%29.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Macroprudential policy instruments and procyclicality of loan-loss provisions – Cross-country evidence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:sgm:fmuwwp:42016

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