Provisioning Rules and Bank Lending: A Theoretical Model

Journal of Financial Stability, 8(2), pp 25-31, 2012

Posted: 25 Jun 2008 Last revised: 22 Mar 2014

See all articles by Vincent Bouvatier

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Date Written: July 2, 2012

Abstract

This paper develops a partial equilibrium model of a banking firm to analyze how provisioning rules influence loan market fluctuations. We show that a backward-looking provisioning system amplifies the pro-cyclicality of loan market fluctuations. We demonstrate that, in a forward-looking provisioning system where statistical provisions are used to smooth the evolution of total loan loss provisions, the issue of pro-cyclicality of loan market fluctuations does not exist. Our results support the recent call of the Basel Committee for the implementation of a forward-looking provisioning system to address procyclicality.

Keywords: loan market, provisioning system, pro-cyclicality

JEL Classification: G21

Suggested Citation

Bouvatier, Vincent and Lepetit, Laetitia, Provisioning Rules and Bank Lending: A Theoretical Model (July 2, 2012). Journal of Financial Stability, 8(2), pp 25-31, 2012. Available at SSRN: https://ssrn.com/abstract=1148314 or http://dx.doi.org/10.2139/ssrn.1148314

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE ( email )

Mail des Mèches
61 avenue du Général de Gaulle
Créteil Cedex, 94010
France

Laetitia Lepetit (Contact Author)

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,116
PlumX Metrics