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Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons

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  • Vincent Bouvatier
  • Laetitia Lepetit

Abstract

A dynamic provisioning system is one of the instruments that regulators could use for introducing counter-cyclicality into prudential regulation. The potential effectiveness of such instrument depends on how far actual backward-looking provisioning practices exacerbate growth in bank lending. We therefore investigate whether backward-looking provisioning practices amplify growth in bank lending and, if such an effect exists, whether there are differences in its magnitude across countries. Our results show that backwardlooking provisioning systems exacerbate banks' lending fluctuations in both developed and emerging countries, but with a stronger impact for emerging countries.

Suggested Citation

  • Vincent Bouvatier & Laetitia Lepetit, 2012. "Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons," International Economics, CEPII research center, issue 132, pages 91-116.
    • Handle: RePEc:cii:cepiie:2012-q4-132-3
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    More about this item

    Keywords

    Bank Lending; Loan loss Provisions; Procyclicality;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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