Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?

Only recently has the debate on bank capital regulation devoted specific attention to the role that bank loan loss provisions can play as part of a minimum capital regulatory framework. Several national regulators have adopted or are planning to in...

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Main Authors: Laeven, Luc, Majnoni, Giovanni
Format: Policy Research Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2014
Subjects:
Online Access:http://documents.worldbank.org/curated/en/2001/12/1671257/loan-loss-provisioning-economic-slowdowns-too-much-too-late
http://hdl.handle.net/10986/19410
id okr-10986-19410
recordtype oai_dc
spelling okr-10986-194102021-04-23T14:03:42Z Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late? Laeven, Luc Majnoni, Giovanni ACCOUNTING PRACTICES AGENTS ARBITRAGE BALANCE SHEET BALANCE SHEET INFORMATION BALANCE SHEETS BANK CAPITAL BANK EARNINGS BANK LENDING BANK LIABILITIES BANK LOANS BANK PROFITS BANK REGULATION BANK RISK BANK SUPERVISION BANKING SUPERVISION BANKING SYSTEMS BANKS BONDS CAPITAL REGULATION CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL STANDARDS COMMERCIAL BANKS CONSUMER PRICE INDEX CREDIT RISK CREDIT RISKS DISCLOSURE ECONOMETRIC EVIDENCE EXTERNALITIES FINANCIAL INSTITUTIONS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL SYSTEMS GDP GDP PER CAPITA GOVERNMENT BONDS GROSS DOMESTIC PRODUCT GROWTH RATE INTEREST INCOME INTEREST RATE LIQUIDITY LOAN LOSS PROVISIONS LOSS RATIO MACROECONOMIC SHOCKS MINIMUM SOLVENCY RATIOS NEGATIVE EXTERNALITIES OPERATING COSTS PORTFOLIO PROBLEM LOANS PRUDENTIAL REQUIREMENTS REAL GDP REAL SECTOR REGULATORY FRAMEWORK REGULATORY REGIMES RESERVES RETAINED EARNINGS RISK MANAGEMENT RISK PREMIUM RISK TAKING RISK WEIGHTED ASSETS RISK-WEIGHTED ASSETS SMALL BANKS SOLVENCY SOLVENCY RATIO SOLVENCY RATIOS SUBSIDIARY TIER 1 CAPITAL TIER 2 CAPITAL Only recently has the debate on bank capital regulation devoted specific attention to the role that bank loan loss provisions can play as part of a minimum capital regulatory framework. Several national regulators have adopted or are planning to introduce a cyclically adjustable requirement for loan loss provisions, and the Basel Committee on Banking Supervision is considering how to provide adequate treatment to provisioning practices within a broad bank capital regulatory framework. The authors contribute to the ongoing debate by exploring the available evidence about bank provisioning practices around the world. They find that in the vast majority of cases banks tend to delay provisioning for bad loans until it is too late-when cyclical downturns have already set in-possibly magnifying the impact of the economic cycle on the income and capital of banks. Notwithstanding the considerable variation in the patterns followed by banks around the world, Laeven and Majnoni find that the size and timing of provisions tend to improve with the level of economic development. 2014-08-19T15:24:18Z 2014-08-19T15:24:18Z 2001-12 http://documents.worldbank.org/curated/en/2001/12/1671257/loan-loss-provisioning-economic-slowdowns-too-much-too-late http://hdl.handle.net/10986/19410 English en_US Policy Research Working Paper;No. 2749 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic ACCOUNTING PRACTICES
AGENTS
ARBITRAGE
BALANCE SHEET
BALANCE SHEET INFORMATION
BALANCE SHEETS
BANK CAPITAL
BANK EARNINGS
BANK LENDING
BANK LIABILITIES
BANK LOANS
BANK PROFITS
BANK REGULATION
BANK RISK
BANK SUPERVISION
BANKING SUPERVISION
BANKING SYSTEMS
BANKS
BONDS
CAPITAL REGULATION
CAPITAL REQUIREMENT
CAPITAL REQUIREMENTS
CAPITAL STANDARDS
COMMERCIAL BANKS
CONSUMER PRICE INDEX
CREDIT RISK
CREDIT RISKS
DISCLOSURE
ECONOMETRIC EVIDENCE
EXTERNALITIES
FINANCIAL INSTITUTIONS
FINANCIAL REGULATION
FINANCIAL SECTOR
FINANCIAL SERVICES
FINANCIAL STABILITY
FINANCIAL SYSTEMS
GDP
GDP PER CAPITA
GOVERNMENT BONDS
GROSS DOMESTIC PRODUCT
GROWTH RATE
INTEREST INCOME
INTEREST RATE
LIQUIDITY
LOAN LOSS PROVISIONS
LOSS RATIO
MACROECONOMIC SHOCKS
MINIMUM SOLVENCY RATIOS
NEGATIVE EXTERNALITIES
OPERATING COSTS
PORTFOLIO
PROBLEM LOANS
PRUDENTIAL REQUIREMENTS
REAL GDP
REAL SECTOR
REGULATORY FRAMEWORK
REGULATORY REGIMES
RESERVES
RETAINED EARNINGS
RISK MANAGEMENT
RISK PREMIUM
RISK TAKING
RISK WEIGHTED ASSETS
RISK-WEIGHTED ASSETS
SMALL BANKS
SOLVENCY
SOLVENCY RATIO
SOLVENCY RATIOS
SUBSIDIARY
TIER 1 CAPITAL
TIER 2 CAPITAL
spellingShingle ACCOUNTING PRACTICES
AGENTS
ARBITRAGE
BALANCE SHEET
BALANCE SHEET INFORMATION
BALANCE SHEETS
BANK CAPITAL
BANK EARNINGS
BANK LENDING
BANK LIABILITIES
BANK LOANS
BANK PROFITS
BANK REGULATION
BANK RISK
BANK SUPERVISION
BANKING SUPERVISION
BANKING SYSTEMS
BANKS
BONDS
CAPITAL REGULATION
CAPITAL REQUIREMENT
CAPITAL REQUIREMENTS
CAPITAL STANDARDS
COMMERCIAL BANKS
CONSUMER PRICE INDEX
CREDIT RISK
CREDIT RISKS
DISCLOSURE
ECONOMETRIC EVIDENCE
EXTERNALITIES
FINANCIAL INSTITUTIONS
FINANCIAL REGULATION
FINANCIAL SECTOR
FINANCIAL SERVICES
FINANCIAL STABILITY
FINANCIAL SYSTEMS
GDP
GDP PER CAPITA
GOVERNMENT BONDS
GROSS DOMESTIC PRODUCT
GROWTH RATE
INTEREST INCOME
INTEREST RATE
LIQUIDITY
LOAN LOSS PROVISIONS
LOSS RATIO
MACROECONOMIC SHOCKS
MINIMUM SOLVENCY RATIOS
NEGATIVE EXTERNALITIES
OPERATING COSTS
PORTFOLIO
PROBLEM LOANS
PRUDENTIAL REQUIREMENTS
REAL GDP
REAL SECTOR
REGULATORY FRAMEWORK
REGULATORY REGIMES
RESERVES
RETAINED EARNINGS
RISK MANAGEMENT
RISK PREMIUM
RISK TAKING
RISK WEIGHTED ASSETS
RISK-WEIGHTED ASSETS
SMALL BANKS
SOLVENCY
SOLVENCY RATIO
SOLVENCY RATIOS
SUBSIDIARY
TIER 1 CAPITAL
TIER 2 CAPITAL
Laeven, Luc
Majnoni, Giovanni
Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?
relation Policy Research Working Paper;No. 2749
description Only recently has the debate on bank capital regulation devoted specific attention to the role that bank loan loss provisions can play as part of a minimum capital regulatory framework. Several national regulators have adopted or are planning to introduce a cyclically adjustable requirement for loan loss provisions, and the Basel Committee on Banking Supervision is considering how to provide adequate treatment to provisioning practices within a broad bank capital regulatory framework. The authors contribute to the ongoing debate by exploring the available evidence about bank provisioning practices around the world. They find that in the vast majority of cases banks tend to delay provisioning for bad loans until it is too late-when cyclical downturns have already set in-possibly magnifying the impact of the economic cycle on the income and capital of banks. Notwithstanding the considerable variation in the patterns followed by banks around the world, Laeven and Majnoni find that the size and timing of provisions tend to improve with the level of economic development.
format Publications & Research :: Policy Research Working Paper
author Laeven, Luc
Majnoni, Giovanni
author_facet Laeven, Luc
Majnoni, Giovanni
author_sort Laeven, Luc
title Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?
title_short Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?
title_full Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?
title_fullStr Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?
title_full_unstemmed Loan Loss Provisioning and Economic Slowdowns : Too Much, Too Late?
title_sort loan loss provisioning and economic slowdowns : too much, too late?
publisher World Bank, Washington, DC
publishDate 2014
url http://documents.worldbank.org/curated/en/2001/12/1671257/loan-loss-provisioning-economic-slowdowns-too-much-too-late
http://hdl.handle.net/10986/19410
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