Safe and Sound Banking : A Role for Countercyclical Regulatory Requirements?

Most explanations of the crisis of 2007-2009 emphasize the role of the preceding boom in real estate and asset markets in a variety of advanced countries. As a result, an idea that is gaining support among various groups is how to make Basel II or any regulatory regime less pro-cyclical. This paper addresses the rationale for and likely contribution of such policies. Making provisioning (or capital) requirements countercyclical is one way potentially to address pro-cyclicality, and accordingly it looks at the efforts of the authorities in Spain and Colombia, two countries in which countercyclical provisioning has been tried, to see what the track record has been. As explained there, these experiments have been at best too recent and limited to put much weight on them, but they are much less favorable for supporting this practice than is commonly admitted. The paper then addresses concerns and implementation issues with countercyclical capital or provisioning requirements, including why their impact might be expected to be limited, and concludes with recommendations for developing country officials who want to learn how to make their financial systems less exposed to crises.

Bibliographic Details

Main Author:	Caprio, Gerard, Jr.
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2010-02
Subjects:	ACCESS TO CREDIT, ACCESS TO FINANCE, ACCOUNTING, ACCOUNTING SYSTEMS, ADVANCED COUNTRIES, AGENCY PROBLEM, ARBITRAGE, ASSET MARKETS, ASSET PRICE, ASSET PRICES, ASSET SALES, AUDITORS, BAILOUT, BALANCE SHEET, BALANCE SHEETS, BANK, BANK ASSETS, BANK BEHAVIOR, BANK CREDITORS, BANK LOAN, BANK LOANS, BANK MANAGEMENT, BANK OF SPAIN, BANK POLICY, BANK REGULATION, BANK RISK TAKING, BANK SUPERVISION, BANK SUPERVISORS, BANKER, BANKERS, BANKING, BANKING CRISIS, BANKING SUPERVISION, BANKING SYSTEM, BANKING SYSTEMS, BANKS, BASIS POINTS, BILLS OF EXCHANGE, BINDING CONSTRAINT, BIS, BORROWER, BUSINESS CYCLE, BUSINESS CYCLES, CAPITAL, CAPITAL RATIO, CAPITAL RATIOS, CAPITAL REGULATION, CAPITAL REQUIREMENT, CAPITAL REQUIREMENTS, CDS, CENTRAL BANKING, CENTRAL BANKS, COLLATERAL, COMMERCIAL BANKS, COMMERCIAL CREDIT, COMMON CURRENCY AREAS, COMMUNICATION, COMPLEX SECURITIES, CONSUMPTION, CORPORATE GOVERNANCE, CORPORATE PAPER, COST OF CREDIT, CREDIT, CREDIT CRUNCH, CREDIT DEFAULT, CREDIT DEFAULT SWAPS, CREDIT EXPANSION, CREDIT GROWTH, CREDIT LINES, CREDIT MARKETS, CREDIT RATING, CREDIT RATING AGENCIES, CREDIT RATINGS, CREDIT RISK, CREDITORS, CREDITWORTHY BORROWERS, CURRENCIES, CURRENCY, CURRENT PRICES, DEBT, DEBTORS, DEFAULT PREMIUM, DEFAULT PROBABILITIES, DEPOSIT, DEPOSIT INSURANCE, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, ECONOMIC CONDITIONS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC POLICY, ECONOMICS, EMERGING MARKET, EMERGING MARKET DEBT, EUROPEAN CENTRAL BANK, EXCHANGE, FACE AMOUNT, FACE VALUE, FACTORS, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE BANK OF ATLANTA, FIDUCIARY STANDARDS, FINANCE, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL DISTRESS, FINANCIAL INNOVATION, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL MANAGEMENT, FINANCIAL MARKETS, FINANCIAL POLICIES, FINANCIAL REGULATION, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FINANCING, FORECASTING, FORMAL FINANCIAL SECTOR, FORMS OF DEBT, FUND MANAGERS, FUTURE, GLOBAL BANKING, GOOD, GOVERNANCE, GOVERNMENT FUNDS, GOVERNMENT SPENDING, GOVERNMENTS, HOLDING, HOLDINGS, HOME OWNERSHIP, HOUSING, HOUSING PRICES, INCOME, INDUSTRIAL COUNTRIES, INFORMATION, INFORMATION ASYMMETRIES, INSTRUMENTS, INSURANCE AGENCY, INTEREST, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL BANKING, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCE, INVESTMENT, INVESTMENT BANKS, INVESTMENT VEHICLES, INVESTORS, LAND, LAWS, LEGISLATION, LENDING, LIQUID ASSETS, LIQUIDITY, LOAN, LOAN OFFICERS, LOAN PROVISIONING, LOANS, LONG-TERM INTEREST, MARKET PARTICIPANTS, MARKET RISKS, MARKETS, MATURITY, MATURITY MISMATCHES, MINIMUM CAPITAL REQUIREMENTS, MONETARY AUTHORITIES, MONETARY POLICY, MONEY SUPPLY, MORAL SUASION, MORTGAGE, MORTGAGE BROKERS, MORTGAGE MARKET, NET WORTH, NONBANKS, OPTION, OPTIONS, PAYMENT, PAYMENT OF INTEREST, PENSION, PENSION FUNDS, PHYSICAL CAPITAL, PORTFOLIO, PRESENT VALUE, PRICE STABILITY, PRICE VOLATILITY, PRICING, PRINCIPAL, PRIVATE SECTOR DEVELOPMENT, PROBABILITY OF DEFAULT, PROFITS, PRUDENTIAL REGULATION, PUBLIC DEBT, RATE OF RETURN, RATES OF RETURN, RATING AGENCIES, REAL ESTATE, RECESSION, RECESSIONS, REGULATORY AGENCIES, REGULATORY AUTHORITIES, REGULATORY FRAMEWORK, REGULATORY POLICY, REGULATORY REGIME, REGULATORY REQUIREMENTS, REGULATORY STANDARDS, REGULATORY SYSTEM, RISK, RISK AVERSION, RISK EXPOSURE, RISK EXPOSURES, RISK PREMIA, RISK PROFILES, RISK TAKING, RISK WEIGHTS, RISK-BASED PRICING, SAFETY NETS, SAVINGS, SAVINGS BANK, SECURITIES, SECURITIZATION, SHARE, SHAREHOLDERS, SPECULATIVE BUBBLES, STOCK, SUPERVISORY AGENCIES, SUPERVISORY AUTHORITIES, SUPERVISORY POWERS, SYSTEMIC RISK, TOTAL DEBT, TRACK RECORD, TRANSACTIONS, TRANSACTIONS COSTS, UNEMPLOYMENT, UNEMPLOYMENT RATES, USURY, VALUE, VALUE OF COLLATERAL,
Online Access:	http://documents.worldbank.org/curated/en/2010/02/11738795/safe-sound-banking-role-countercyclical-regulatory-requirements http://hdl.handle.net/10986/19916
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