Countercyclical Macroprudential Tools

2011 ◽  
Vol 216 ◽  
pp. R16-R28 ◽  
Author(s):  
Jesús Saurina
Keyword(s):  
Banking System ◽  
Capital Requirements ◽  
Gdp Growth ◽  
Loan Loss ◽  
Minimum Capital ◽  
Loan Loss Provisions ◽  
Risk Sensitive ◽  
Short Horizon ◽  
Forward Looking

Risk-sensitive capital requirements, such as those established in Basel 2/3, and loan loss provisions based on incurred losses or on short-horizon expected losses, increase procyclicality in the banking system. They could, therefore, contribute to fuelling credit bubbles in good times, as rising risks are not properly covered either with capital or provisions, and credit crunches in bad times, as requirements are sharply increased to compensate for the former undercapitalisation and under-provisioning, and banks respond by cutting credit to households and firms. This paper shows that the procyclicality of current and envisaged capital requirements and loan loss provisions is a serious concern. But, at the same time, it can be dealt with using countercyclical macroprudential tools, first, by smoothing minimum capital requirements using a very simple and intuitive formula based on GDP growth and, secondly, by using forward-looking provisions such as the Spanish dynamic provisions, a working macroprudential mechanism for more than a decade and a full lending cycle.

Benchmarking and crosschecking international banking economic and regulatory capital

2005 ◽  
Vol 13 (1) ◽  
pp. 65-79 ◽  
Author(s):  
John L. Simpson ◽  
John Evans
Keyword(s):  
Banking System ◽  
Performance Model ◽  
Capital Adequacy ◽  
Future Research ◽  
Informational Efficiency ◽  
International Banking ◽  
Regulatory Capital ◽  
Loan Loss ◽  
Banking Systems ◽  
Loan Loss Provisions

The purpose of this paper is to provide banking regulators with another tool to crosscheck the appropriateness and consistency of levels of capital adequacy for banks. The process begins by examining banking systems and focuses on market risks and the systemic risks associated with growing global economic integration and associated systemic interdependence. The model provides benchmarks for economic and regulatory capital for international banking systems using country, regional and global stock‐market generated price index returns data. The benchmarks can then be translated to crosschecking capital levels for banks within those systems. For analytical purposes systems are assumed to possess a degree of informational efficiency and credit, liquidity and operational risks are held constant or at least assumed to be covered in loan loss provisions. An empirical study is included that demonstrates how market risk and systemic risk can be accounted for in a benchmark banking system performance model. Full testing of the model is left for future research. The paper merely proposes that such an approach is feasible and useful and it is in no way intended to be a replacement for the current Basel Accord.

scholarly journals Does the New European Banking Regulation discourage Earnings Management?

2017 ◽  
Vol 10 (10) ◽  
pp. 45 ◽  
Author(s):  
Giuseppe Di Martino ◽  
Grazia Dicuonzo ◽  
Graziana Galeone ◽  
Vittorio Dell'Atti
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Banking Sector ◽  
Banking Regulation ◽  
Regulatory Framework ◽  
Loan Loss ◽  
Minimum Capital ◽  
Loan Loss Provisions ◽  
European Banking ◽  
Single Rulebook

In the recent past, the financial crisis has shown important lacks in the EU regulation relating to the banking sector, making the introduction of a unified regulatory framework necessary. Since June 2009 the European Council has recommended a “Single Rulebook”, that is a unique and harmonizing discipline applicable to all financial institutions in the Single Market, become effective on January 2014. This prudential discipline requires much more minimum capital, liquidity and information transparency and it defines format and minimum standards of contents.The aim of this research is to investigate the relation between the new mandatory disclosure and earnings management policies in banking sector realized through Loan Loss Provisions (LLP), the component of income statement mainly subject to manipulations, especially in form of earnings smoothing. Because the new integrated regulatory framework requires a more transparent disclosure, we expected that accruals manipulation (basically LLP) could be discouraged. The empirical analysis is based on a sample of 116 listed European banks over the period prior (2011-2012-2013) and after (2014-2015-2016) the effective date of the Single Rulebook. The evidence confirm our hypothesis suggesting that this banking reform discourages earnings manipulation and improves earnings quality, making financial reporting more useful for investors. The results are important to the regulatory institutions (such as European Union and European Central Bank) supporting more stringent discipline introduced by Basel III.

scholarly journals Provisioning, Bank Behavior and Financial Crisis: Evidence from GCC Banks

2015 ◽  
Vol 11 (3) ◽  
Author(s):  
Saibal Ghosh
Keyword(s):  
Bank Loan ◽  
Capital Regulation ◽  
Islamic Banks ◽  
Bank Capital ◽  
Loan Loss ◽  
Minimum Capital ◽  
Loan Loss Provisions ◽  
Bank Capital Regulation ◽  
Bank Behavior ◽  
Using Data

AbstractThe debate on bank capital regulation has in recent years devoted specific attention to the role that bank loan loss provisions play as a part of the overall minimum capital regulatory framework. Using data for 1996–2011, we find evidence in favor of both capital management and signaling behavior by GCC banks. Islamic banks appear to engage less in such behavior as compared to their non-Islamic counterparts.

Foreign exchange positions and risks of czech banks

1997 ◽  
Vol 6 (1) ◽  
Author(s):  
Josef Jílek ◽  
Jiřina Jílková
Keyword(s):  
Foreign Exchange ◽  
Banking System ◽  
Market Risk ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Minimum Capital ◽  
Market Risks ◽  
Current State ◽  
National Bank ◽  
Foreign Exchange Trading

Almost every bank has some degree of foreign exchange exposure. A bank, which holds net open positions in foreign currencies is exposed to the risk that exchange rates may move against it. Net open positions are due to foreign exchange trading positions or because of exposures caused by firm's overall assets and liabilities. Czech National Bank has imposed limits of FX risks and is thus limiting maximum potential loss of the Czech banking system. The paper describes the way how to calculate a bank's open FX positions and the current state of FX positions in selected Czech commercial hanks. The FX risk is a part of market risk. The Capital Adequacy Directive (CAD) and Basle Committee on Banking Supervision in its document Amendment to the Capital Accord to Incorporate Market Risks set out the minimum capital requirements for credit institutions and investment firms with respect to market risk.

Warum der Baseler Ausschuss für Bankenaufsicht mit seinem antizyklischen Kapitalpuffer falsch liegt

2012 ◽  
Vol 13 (Supplement) ◽  
pp. 92-102
Author(s):  
Björn Ludwig
Keyword(s):  
Reference Point ◽  
Capital Requirements ◽  
Gdp Growth ◽  
Basel Iii ◽  
Credit Growth ◽  
Rule Based ◽  
The Real ◽  
Minimum Capital ◽  
Real Gdp

AbstractThe Basel III Framework introduces a countercyclical capital buffer to reduce the procyclicality of the minimum capital requirements. The reference point for the decision to impose the buffer is based on the credit-to-GDP ratio. However, this guidance will exacerbate the problem of procyclicality in a rule based application, because in periods with a low GDP growth it sends a signal to increase the capital requirements and in periods with a high GDP growth it sends a signal to reduce the capital requirements. Instead of the credit-to-GDP ratio the credit growth and the credit impulse should be used as reference point, because these variables are high correlated with the real GDP growth.

scholarly journals THE ASSESSMENT OF NON-PERFORMING LOANS IN UKRAINIAN BANKS CREDIT PORTFOLIO

2012 ◽  
Vol 8 (1) ◽  
pp. 244-250
Author(s):  
Inna Taranukha
Keyword(s):  
Foreign Capital ◽  
Banking System ◽  
Capital Inflows ◽  
Loan Loss ◽  
Loan Loss Provisions ◽  
Foreign Capital Inflows ◽  
Credit Portfolio

The influence of foreign capital inflows on expanding of lending processes in Ukraine is analyzed in the article. Volume of non-performing loans and loan loss provisions, formed in the Ukrainian banking system during the period 2005-2011, are estimated.

Drivers of Bank Solvency, Risk Provisioning and Profitability in the Armenian Banking System

2018 ◽  
Vol 17 (3) ◽  
pp. 307-332
Author(s):  
Suren Pakhchanyan ◽  
Jörg Prokop ◽  
Gor Sahakyan
Keyword(s):  
Banking Sector ◽  
Banking System ◽  
Jel Classification ◽  
Regulatory Capital ◽  
Loan Loss ◽  
Loan Loss Provisions ◽  
Capital Ratios ◽  
Bank Solvency ◽  
Macroeconomic Determinants ◽  
Loan Growth

The aim of this study is to examine the effects of bank-specific, regulatory and macroeconomic determinants on solvency, risk provisioning, and profitability in the Armenian banking sector. We show that abnormal loan growth is associated with a decrease in regulatory capital ratios, an increase in loan loss provisions, and a reduction in loan portfolio profitability. In addition, we observe an inverse relationship between GDP growth and bank solvency as well as profitability. Regarding regulation, we identify a decrease in regulatory capital ratios as well as a drop in profitability after the implementation of the Basel II Accord. JEL Classification: G32, G21, G28

EU Non-Performing Loans and Loan Loss Provisioning

2020 ◽  
pp. 93-114
Author(s):  
Dalvinder Singh
Keyword(s):  
Balance Sheet ◽  
Capital Requirements ◽  
Negative Consequences ◽  
European Level ◽  
Loan Loss ◽  
Cross Border ◽  
Loan Loss Provisions ◽  
Private And Public ◽  
Regulatory Decisions ◽  
Push And Pull

This chapter focuses on the issue of non-performing loans (NPLs), which is critical in the home and host dilemma because of the significant level of cross-border banking that exists at the European level. Indeed, the NPL problem is one of the negative consequences of the push and pull factors of cross-border banking. The move towards consistent practices in the management of NPLs is exemplified by regulatory measures concerning loan loss provisions. In particular, the interlinkages between loan loss provisioning and capital requirements and how they interact with banks and their balance sheet combine a multitude of regulatory decisions directly and indirectly at the accounting and prudential supervisory level. The dynamics of private and public forms of regulation require a systematic discussion of how best to combine and interpret the reforms at European level.

scholarly journals Implementing the countercyclical capital buffer in South Africa: Practical considerations

2015 ◽  
Vol 18 (1) ◽  
pp. 105-127 ◽  
Author(s):  
Pravin Burra ◽  
Pieter Juriaan De Jongh ◽  
Helgard Raubenheimer ◽  
Gary Van Vuuren ◽  
Henco Wiid
Keyword(s):  
South African ◽  
Systemic Risk ◽  
Financial Distress ◽  
Banking System ◽  
Capital Requirements ◽  
Critical Discussion ◽  
Basel Iii ◽  
Risk Indicator ◽  
Bank Capital ◽  
Minimum Capital

The Basel II regulatory framework significantly increased the resilience of the banking system, but proved ineffective in preventing the 2008/9 financial crisis. The subsequent introduction of Basel III aimed, inter alia, to supplement bank capital using buffers. The countercyclical buffer boosts existing minimum capital requirements when systemic risk surges are detected. Bolstering capital in favourable economic conditions cushions losses in unfavourable conditions, thereby addressing capital requirement procyclicality. This paper contains an overview of the countercyclical capital buffer and a critical discussion of its implementation as proposed in Basel III. Consequences of the buffer's introduction for South African banks are explored, and in particular, potential systemic risk indicator variables are identified that may be used by the South African Reserve Bank (SARB) as early warning indicators of imminent systemic financial distress. These indicators may be of value to the SARB, which could use them in taking decisions on the build-up and release of the countercyclical buffer for South African banks.

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