Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments

60 Pages Posted: 15 Mar 2012

See all articles by Jose-Luis Peydro

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Gabriel Jiménez

Banco de España

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Jesus Saurina Salas

Banco de España

Date Written: March 14, 2012

Abstract

We analyze the impact of countercyclical capital buffers held by banks on the supply of credit to firms and the subsequent corporate performance. Countercyclical bank capital buffers is a macroprudential policy measure which is going to be introduced by Basel III and that has been analyzed in research as an optimal instrument to reduce the likelihood and severity of banking crises. Countercyclical ‘dynamic’ provisioning that is unrelated to specific loan losses was introduced in Spain in 2000, and it was later modified in 2005 and in 2008. These provisioning experiments have been discussed in important policy meetings as the G-20, IMF, Fed, BIS, ECB and WB, and by academics as Tirole and Shin. These three policy experiments which entailed bank-specific countercyclical shocks to bank capital buffers, combined with the financial crisis that shocked banks according to their available buffers and in conjunction with comprehensive bank-, firm-, loan, and loan application level data from the Spanish credit register, underpin our identification strategy. Our estimates suggest that countercyclical capital buffers help mitigate credit supply cycles and in crisis times have positive effects on firm credit availability, assets, employment and survival. Our findings therefore hold important implications for both theory and macroprudential policy.

Keywords: bank capital, dynamic provisioning, credit availability, financial crisis

JEL Classification: G01, G21, G28

Suggested Citation

Peydro, Jose-Luis and Jimenez, Gabriel and Ongena, Steven R. G. and Saurina Salas, Jesus, Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments (March 14, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2022133 or http://dx.doi.org/10.2139/ssrn.2022133

Jose-Luis Peydro (Contact Author)

Catalan Institution of Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Gabriel Jimenez

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jesus Saurina Salas

Banco de España ( email )

Madrid 28014
Spain

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