Do Dynamic Provisions Enhance Bank Solvency and Reduce Credit Procyclicality? a Study of the Chilean Banking System

May 1, 2012

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

Dynamic provisions could help to enhance the solvency of individual banks and reduce procyclicality. Accomplishing these objectives depends on country-specific features of the banking system, business practices, and the calibration of the dynamic provisions scheme. In the case of Chile, a simulation analysis suggests Spanish dynamic provisions would improve banks' resilience to adverse shocks but would not reduce procyclicality. To address the latter, other countercyclical measures should be considered.

Subject: Bank solvency, Banking, Credit, Domestic credit, Financial institutions, Financial sector policy and analysis, Loans, Money, Procyclicality

Keywords: bank, Bank solvency, banks, buffer shift, Chile, countercyclical provision rule Peru, Credit, Domestic credit, dynamic provision, Dynamic provisions, Global, loan, loan loss, Loans, procyclicality, provision, provision buffer, provision cycle, provisions regime, regimes process, simulation, WP

Pages:
21
Volume:
2012
DOI:
https://doi.org/10.5089/9781475503531.001
Issue:
124
Series:
Working Paper No. 2012/124
Stock No:
WPIEA2012124
ISBN:
9781475503531
ISSN:
1018-5941

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