Dynamic Loan Loss Provisioning: Simulations on Effectiveness and Guide to Implementation

60 Pages Posted: 9 Aug 2012

See all articles by Torsten Wezel

Torsten Wezel

International Monetary Fund (IMF)

Jorge A. Chan Lau

affiliation not provided to SSRN

Francesco Columba

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: May 2012

Abstract

This simulation-based paper investigates the impact of different methods of dynamic provisioning on bank soundness and shows that this increasingly popular macroprudential tool can smooth provisioning costs over the credit cycle and lower banks’ probability of default. In addition, the paper offers an in-depth guide to implementation that addresses pertinent issues related to data requirements, calibration and safeguards as well as accounting, disclosure and tax treatment. It also discusses the interaction of dynamic provisioning with other macroprudential instruments such as countercyclical capital.

Keywords: Dynamic Provisioining, Procyclicality, Macroprudential Policy, Latin America, Bank Soundness, Banks, Capital, Credit Risk

JEL Classification: G21, G28

Suggested Citation

Wezel, Torsten and Chan Lau, Jorge A. and Columba, Francesco, Dynamic Loan Loss Provisioning: Simulations on Effectiveness and Guide to Implementation (May 2012). IMF Working Paper No. 12/110, Available at SSRN: https://ssrn.com/abstract=2127009

Torsten Wezel

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
2026237399 (Phone)

Jorge A. Chan Lau

affiliation not provided to SSRN

No Address Available

Francesco Columba

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+39-06-47922131 (Phone)
+39-09-47923611 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
97
Abstract Views
610
rank
205,678
PlumX Metrics