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  • Forthcoming
  • Article
  • Journal of Financial Intermediation

Countercyclical Prudential Buffers and Bank Risk-taking

By: Joseph Pacelli, Manuel Illueca Muñoz, Lars Norden and Gregory F. Udell
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Abstract

We investigate the effects of countercyclical prudential buffers on bank risk-taking. We exploit the introduction of dynamic loan loss provisioning in Spain, mandating that banks use historical average loss rates in their estimation of loan loss provisions. We find that dynamic loan loss provisioning is associated with reductions in timely loan loss provisioning. Banks that previously recognized loan losses in a timely fashion exhibit the greatest reductions in timeliness and consequently extend loans to riskier borrowers with lower accounting quality. Our results have policy implications for the debate on the use of financial reporting requirements in mitigating capital pro-cyclicality.

Keywords

Banks; Bank Regulation; Macroprudential Policies; Bank Lending; Loan Loss Provisioning; Risk Taking; Banks and Banking; Financing and Loans; Governing Rules, Regulations, and Reforms; Risk and Uncertainty

Citation

Pacelli, Joseph, Manuel Illueca Muñoz, Lars Norden, and Gregory F. Udell. "Countercyclical Prudential Buffers and Bank Risk-taking." Journal of Financial Intermediation (forthcoming).
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About The Author

Joseph Pacelli

Accounting and Management
→More Publications

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More from the Authors
  • Do Job Seekers Value Diversity Information? Evidence from a Field Experiment By: Joseph Pacelli, Jung Ho Choi, Kristina M. Rennekamp and Sorabh Tomar
  • Dirty Money: How Banks Influence Financial Crime By: Joseph Pacelli, Janet Gao, Jan Schneemeier and Yufeng Wu
  • Does the Freedom of Information Act Foil the Securities and Exchange Commission's Intent to Keep Investigations Confidential? By: Braiden Coleman, Kenneth Merkley, Brian Miller and Joseph Pacelli
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