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

• Authors: Olszak Małgorzata , Roszkowska Sylwia , Kowalska Iwona
• Languages of publication: EN

Abstracts

EN

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

EN

macroprudential policy; loan-loss provisions; business cycle; procyclicality

• Publisher: Uniwersytet Warszawski. Wydawnictwo Naukowe Wydziału Zarządzania
• Journal: Faculty of Management Working Paper Series
• Year: 2016
• Issue: WPS 4/2016
• Pages: 1-52

Dates

online

2016-12-08

Contributors

author

Olszak Małgorzata

• Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland

author

Roszkowska Sylwia

• Faculty of Economic and Social Sciences, University of Łódź, National Bank of Poland, Poland

author

Kowalska Iwona

• Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland

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Identifiers

ISSN

2300-4371