Citation

Discussion Paper Details

Please find the details for DP13135 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Procyclicality of Expected Credit Loss Provisions

Author(s): Jorge Abad and Javier Suarez

Publication Date: August 2018

Keyword(s): credit loss allowances, expected credit losses, incurred losses, procyclicality and rating migrations

Programme Area(s): Financial Economics

Abstract: The Great Recession has pushed accounting standards for banks' loan loss provisioning to shift from an incurred loss approach to an expected credit loss approach. IFRS 9 and the incoming update of US GAAP imply a more timely recognition of credit losses but also greater responsiveness to changes in aggregate conditions, which raises procyclicality concerns. This paper develops and calibrates a recursive ratings-migration model to assess the impact of different provisioning approaches on the cyclicality of banks' profits and regulatory capital. The model is used to analyze the effectiveness of potential policy responses to the procyclicality problem.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13135

Bibliographic Reference

Abad, J and Suarez, J. 2018. 'The Procyclicality of Expected Credit Loss Provisions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13135