The impact of loan loss provisioning on bank capital requirements

Krüger, S; Rösch, D; Scheule, H

The impact of loan loss provisioning on bank capital requirements

Krüger, S Rösch, D Scheule, H

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Publication Type:: Journal Article
Citation:: Journal of Financial Stability, 2018, 36 pp. 114 - 129
Issue Date:: 2018-06-01

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Field	Value	Language
dc.contributor.author	Krüger, S	en_US
dc.contributor.author	Rösch, D	en_US
dc.contributor.author	Scheule, H https://orcid.org/0000-0001-7283-5654	en_US
dc.date.available	2020-05-25T19:17:57Z
dc.date.issued	2018-06-01	en_US
dc.identifier.citation	Journal of Financial Stability, 2018, 36 pp. 114 - 129	en_US
dc.identifier.issn	1572-3089	en_US
dc.identifier.uri	http://hdl.handle.net/10453/123879
dc.description.abstract	© 2018 Elsevier B.V. This paper shows that the revised loan loss provisioning based on the International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (GAAP) implies a reduction of Tier 1 capital. The paper finds in a counterfactual analysis that these changes are more severe (i) during economic downturns, (ii) for credit portfolios of low quality, (iii) for banks that do not tighten capital standards during downturns, and (iv) under a more comprehensive definition of significant increase in credit risk (SICR) under IFRS. The provisioning rules further increase the procyclicality of bank capital requirements. Adjustments of the SICR threshold or capital buffers are suggested as ways to mitigate a regulatory pressure that may emerges due to the reduction of regulatory capital.	en_US
dc.relation.ispartof	Journal of Financial Stability	en_US
dc.relation.isbasedon	10.1016/j.jfs.2018.02.009	en_US
dc.subject.classification	Finance	en_US
dc.title	The impact of loan loss provisioning on bank capital requirements	en_US
dc.type	Journal Article
utslib.citation.volume	36	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.publication-status	Published	en_US
pubs.volume	36	en_US

Abstract:

© 2018 Elsevier B.V. This paper shows that the revised loan loss provisioning based on the International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (GAAP) implies a reduction of Tier 1 capital. The paper finds in a counterfactual analysis that these changes are more severe (i) during economic downturns, (ii) for credit portfolios of low quality, (iii) for banks that do not tighten capital standards during downturns, and (iv) under a more comprehensive definition of significant increase in credit risk (SICR) under IFRS. The provisioning rules further increase the procyclicality of bank capital requirements. Adjustments of the SICR threshold or capital buffers are suggested as ways to mitigate a regulatory pressure that may emerges due to the reduction of regulatory capital.

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http://hdl.handle.net/10453/123879