Dynamic Loan Loss Provisioning : Simulationson Effectiveness and Guide to Implementation

Author/Editor:

Torsten Wezel ; Jorge A Chan-Lau ; Francesco Columba

Publication Date:

May 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 12/110

Subject:

English

Publication Date:

May 1, 2012

ISBN/ISSN:

9781475503319/1018-5941

Stock No:

WPIEA2012110

Format:

Paper

Pages:

59

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