Publication:
Dynamic Provisioning

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Date
2009-07
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2009-07
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Dynamic loan loss provisions can help deal with procyclicality in banking. By allowing earlier detection and coverage of credit losses in loan portfolios, they enable banks to build up a buffer in good times that can be used in bad times. Their anticyclical nature enhances the resilience of both individual banks and the banking system as a whole. While there is no guarantee that they will be enough to cope with all the credit losses of a downturn, dynamic provisions have proved useful in Spain during the current financial crisis. They could be an important prudential tool for emerging economies, where banks dominate financial intermediation.
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Saurina, Jesus. 2009. Dynamic Provisioning. Crisis Response Note; No. 7. © World Bank, Washington, DC. http://hdl.handle.net/10986/10241 License: CC BY 3.0 IGO.
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