Dynamic Loan Loss Provisioning Simulationson Effectiveness and Guide to Implementation

This simulation-based paper investigates the impact of different methods of dynamic provisioning on bank soundness and shows that this increasingly popular macroprudential tool can smooth provisioning costs over the credit cycle and lower banks’ probability of default. In addition, the paper offers...

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Bibliographic Details
Main Author: Wezel, Torsten
Other Authors: Chan-Lau, Jorge, Columba, Francesco
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2012
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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653 |a Business cycles 
653 |a Depository Institutions 
653 |a Asset requirements 
653 |a Credit 
653 |a Basel II 
653 |a Banks 
653 |a Finance 
653 |a Banks and banking 
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653 |a Financial sector policy and analysis 
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653 |a General Financial Markets: Government Policy and Regulation 
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653 |a Micro Finance Institutions 
653 |a Financial Institutions and Services: Government Policy and Regulation 
653 |a Mortgages 
653 |a Money 
653 |a Cycles 
653 |a Loans 
653 |a Banks and banking; State supervision 
653 |a Banks and Banking 
653 |a Financial regulation and supervision 
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520 |a This simulation-based paper investigates the impact of different methods of dynamic provisioning on bank soundness and shows that this increasingly popular macroprudential tool can smooth provisioning costs over the credit cycle and lower banks’ probability of default. In addition, the paper offers an in-depth guide to implementation that addresses pertinent issues related to data requirements, calibration and safeguards as well as accounting, disclosure and tax treatment. It also discusses the interaction of dynamic provisioning with other macroprudential instruments such as countercyclical capital