Hostname: page-component-7b7567c8c-fvjsw Total loading time: 0 Render date: 2026-11-15T00:35:36.938Z Has data issue: false hasContentIssue false
  • English
  • Français

Countercyclical Macroprudential Tools

Published online by Cambridge University Press:  26 March 2020

Jesús Saurina
Jesús Saurina*
Affiliation:
Department at the Banco de España
*
e-mail jsaurina@bde.es
Get accessRights & Permissions [Opens in a new window]

Abstract

Risk-sensitive capital requirements, such as those established in Basel 2/3, and loan loss provisions based on incurred losses or on short-horizon expected losses, increase procyclicality in the banking system. They could, therefore, contribute to fuelling credit bubbles in good times, as rising risks are not properly covered either with capital or provisions, and credit crunches in bad times, as requirements are sharply increased to compensate for the former undercapitalisation and under-provisioning, and banks respond by cutting credit to households and firms. This paper shows that the procyclicality of current and envisaged capital requirements and loan loss provisions is a serious concern. But, at the same time, it can be dealt with using countercyclical macroprudential tools, first, by smoothing minimum capital requirements using a very simple and intuitive formula based on GDP growth and, secondly, by using forward-looking provisions such as the Spanish dynamic provisions, a working macroprudential mechanism for more than a decade and a full lending cycle.

Keywords

Macroprudential toolsprocyclicalitybank capital regulationBasel 3dynamic provisionsbusiness cyclescredit boomcredit crunchE32G28

Information

Type
Research Articles
Information
National Institute Economic Review , Volume 216 , April 2011, pp. R16 - R28
Copyright
Copyright © 2011 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

Footnotes

∗

This paper is the sole responsibility of its author and the views represented here do not necessarily reflect those of the Banco de España or the Eurosystem. This paper draws significantly on Saurina (2009a,b), Saurina (2011), and Repullo, Saurina and Trucharte (2010). I would like to thank an anonymous referee for very helpful comments. Any errors that remain are, however, entirely my own.

References

Banco de España (2004), Circular 4/2004, Entidades de Crédito, Normas de Información Financiera Pública y Reservada y Modelos de Estados Financieros, Madrid.Google Scholar
Banco de España (2005), Financial Stability Report, May.Google Scholar
Bank for International Settlements (2009), 79th Annual Report, Basel, June.Google Scholar
Bank for International Settlements (2010), 80th Annual Report, Basel, June.Google Scholar
Basel Committee on Banking Supervision (2006), International Convergence of Capital Measurement and Capital Standards. A Revised Framework, Basel, Bank for International Settlements.Google Scholar
Basel Committee on Banking Supervision (2010), ‘Countercyclical capital buffer proposal’, Consultative Document, July.Google Scholar
Berger, A.N. and Udell, G.F. (1990), ‘Collateral, loan quality, and bank risk’, Journal of Monetary Economics, 25, pp. 21–42.CrossRefGoogle Scholar
Bernanke, B.S. (2009), ‘Reflections on a year of crisis’, speech at the Federal Reserve Bank of Kansas City's Annual Economic Symposium, Jackson Hole, Wyoming, August.Google Scholar
Borio, C. (2003), ‘Towards a macroprudential framework for financial supervision and regulation’, BIS Working Paper 128, Basel, Bank for International Settlements.Google Scholar
Caruana, J. (2005), ‘Monetary policy, financial stability and asset prices’, Occasional Papers, 0507, Banco de España.Google Scholar
Caruana, J. (2010), ‘The challenge of taking macroprudential decisions: who will press which button(s)?’, speech at the 13th Annual International Banking Conference, Federal Reserve Bank of Chicago/IMF, Chicago, 24 September.Google Scholar
Fernández de Lis, S., Martínez, J. and Saurina, J. (2000), ‘Credit growth, problem loans and credit risk provisioning in Spain’, Working Paper 0018, Banco de España.Google Scholar
Financial Services Authority (2009), The Turner Review: A Regulatory Response to the Global Banking Crisis, London, Financial Services Authority.Google Scholar
Gordy, M. and Howells, B. (2006), ‘Pro-cyclicality in Basel II: can we treat the disease without killing the patient?’, Journal of Financial Intermediation, 15, pp. 395–417.CrossRefGoogle Scholar
Jiménez, G., Lopez, J.A. and Saurina, J. (2009), ‘Empirical analysis of corporate credit lines’, Review of Financial Studies, 22, pp. 5069–98.CrossRefGoogle Scholar
Jiménez, G., Ongena, S., Peydró, J.L. and Saurina, J. (2008), ‘Hazardous times for monetary policy: what do twenty-three million bank loans say about the effects of monetary policy on credit risk?’, Working Paper 0833, Banco de España.CrossRefGoogle Scholar
Jiménez, G., Salas, V. and Saurina, J. (2006), ‘Determinants of collateral’, Journal of Financial Economics, 81, pp. 255–81.CrossRefGoogle Scholar
Jiménez, G. and Saurina, J. (2006), ‘Credit cycles, credit risk, and prudential regulation’, International Journal of Central Banking, 2 (2), pp. 65–98.Google Scholar
Kashyap, A. and Stein, J. (2004), ‘Cyclical implications of Basel II capital standards’, Federal Reserve Bank of Chicago, Economic Perspectives, 1st Quarter, pp. 18–31.Google Scholar
Keeley, M.C. (1990), ‘Deposit insurance, risk and market power in banking’, American Economic Review, 80, pp. 1183–200.Google Scholar
Rajan, R. (1994), ‘Why bank credit policies fluctuate: a theory and some evidence’, Quarterly Journal of Economics, 109 (2), pp. 399–441.CrossRefGoogle Scholar
Repullo, R., Saurina, J. and Trucharte, C. (2010), ‘Mitigating the procyclicality of Basel II’, Economic Policy, October, pp. 659–702.CrossRefGoogle Scholar
Repullo, R. and Suarez, J. (2009), ‘The procyclical effects of Basel II’, CEPR Discussion Paper 6862.Google Scholar
Salas, V. and Saurina, J. (2003), ‘Deregulation, market power and risk behavior in Spanish banks’, European Economic Review, 47, pp. 1061–75.CrossRefGoogle Scholar
Saurina, J. (2009a), ‘Loan loss provisions in Spain. A working macroprudential tool’, Estabilidad Financiera, No. 17, Banco de España, pp. 11–26.Google Scholar
Saurina, J. (2009b), ‘Dynamic provisioning. The experience of Spain’, Crisis Response, Public Policy for the Private Sector, Note Number 7, July, The World Bank.Google Scholar
Saurina, J. (2011), ‘Working macroprudential tools’, forthcoming in Federal Reserve Bank of Chicago and International Monetary Fund Conference Proceedings.Google Scholar
Saurina, J. and Trucharte, C. (2007), ‘An assessment of Basel II pro-cyclicality in mortgage portfolios’, Journal of Financial Services Research, 32, pp. 81–101.CrossRefGoogle Scholar
Viñals, J., Fiechter, J., Pazarbasioglu, C., Kodres, L., Narain, A. and Moretti, M. (2010), ‘Shaping the new financial system’, IMF Staff Position Note 10/15, October.CrossRefGoogle Scholar