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Instruments for Curbing Fluctuations in Lending over the Business Cycle

In: CNB Financial Stability Report 2008/2009

Author

Listed:
  • Jan Frait
  • Zlatuse Komarkova

Abstract

This article sets out to discuss instruments for reducing procyclical bank lending behaviour. Special attention is given to how much the regulatory framework contributes to the procyclicality of the financial system. The main subject of the article is the dynamic provisioning regime currently under discussion as one of the possible regulatory responses to the ongoing global financial crisis. The analysis reveals that Czech banks are among those that provision in a procyclical manner. On the theoretical level, therefore, dynamic provisioning could in the Czech economy help create a buffer during good times which could then be used during recessions. On the practical level, however, dynamic provisioning would for numerous reasons be difficult to introduce and would first need to be aligned with the other components of the international framework for the regulation of financial institutions.

Suggested Citation

  • Jan Frait & Zlatuse Komarkova, 2009. "Instruments for Curbing Fluctuations in Lending over the Business Cycle," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2008/2009, chapter 0, pages 72-81, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:fsr0809/1
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    References listed on IDEAS

    as
    1. Laeven, Luc & Majnoni, Giovanni, 2003. "Loan loss provisioning and economic slowdowns: too much, too late?," Journal of Financial Intermediation, Elsevier, vol. 12(2), pages 178-197, April.
    2. Bikker, J.A. & Metzemakers, P.A.J., 2005. "Bank provisioning behaviour and procyclicality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 141-157, April.
    3. Philip Turner, 2000. "Procyclicality of Regulatory Ratios?," SCEPA working paper series. 2000-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    4. Ceyla Pazarbasioglu & Miss Gudrun Johnsen & Mr. Paul Louis Ceriel Hilbers & Ms. Inci Ötker, 2005. "Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies," IMF Working Papers 2005/151, International Monetary Fund.
    5. Jaime Caruana, 2005. "Monetary policy, financial stability and asset prices," Occasional Papers 0507, Banco de España.
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    Citations

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    Cited by:

    1. Jan FRAIT & Zlatuše KOMÁRKOVÁ, 2013. "Loan Loss Provisioning in Selected European Banking Sectors: Do Banks Really Behave in a Procyclical Way?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(4), pages 308-326, August.
    2. Vasiliki Makri, 2016. "Towards an Investigation of Credit Risk Determinants in Eurozone Countries," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 15(1), pages 27-57, March.
    3. Mario Pecaric & Josip Viskovic, 2013. "The effects of prudential policy measures on financial stability in post-transition countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 31(1), pages 9-34.
    4. Jan Frait & Zlatuse Komarkova, 2011. "Financial Stability, Systemic Risk and Macroprudential Policy," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2010/2011, chapter 0, pages 96-111, Czech National Bank.
    5. Frait, Jan & Gersl, Adam & Seidler, Jakub, 2011. "Credit growth and financial stability in the Czech Republic," Policy Research Working Paper Series 5771, The World Bank.
    6. Adam Gersl & Petr Jakubik, 2010. "Procyclicality of the Financial System and Simulation of the Feedback Effect," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2009/2010, chapter 0, pages 110-119, Czech National Bank.
    7. Laivi Laidroo, 2014. "Lending Growth and Cyclicality in Central and Eastern European Banks," TUT Economic Research Series 13, Department of Finance and Economics, Tallinn University of Technology.
    8. R. Brian Langrin & Lavern McFarlane, 2014. "Policy Implications for the Application of Countercyclical Capital Buffers When the Government Borrowing Crowds Out Private Sector Credit: The Case of Jamaica," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(2), pages 285-312, July-Dece.

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