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Publications
  • July 2022
  • Article
  • Journal of Financial Intermediation

Countercyclical Prudential Buffers and Bank Risk-taking

By: Manuel Illueca, Lars Norden, Joseph Pacelli and Gregory F. Udell
  • Format:Print
  • | Pages:13
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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

Illueca, Manuel, Lars Norden, Joseph Pacelli, and Gregory F. Udell. "Countercyclical Prudential Buffers and Bank Risk-taking." Art. 100961. Journal of Financial Intermediation 51 (July 2022).
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About The Author

Joseph Pacelli

Accounting and Management
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  • Accounting Outages at Plug Power? (C) By: Jonas Heese, Joseph Pacelli and James Barnett
  • Accounting Red Flags or Red Herrings at Catalent? By: Joseph Pacelli, ZeSean Ali and Tom Quinn
  • GameStop: Social Media Finds a Cheat Code By: Joseph Pacelli and Sarah Mehta
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