The Performance of Using Dynamic Provisioning for Banks in Taiwan

• Main Authors: Wu, Peilin, 吳佩玲
• Other Authors: 林文昌
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/02633293280673605718

碩士 === 國立中正大學 === 財務金融研究所 === 99 === Prior research found that risk-based capital requirements and the incurred loss provisioning approach can exacerbate the procyclicality of bank lending behavior and consequently increase the instability of the banking system. Reducing the procyclicality of the financial system is the most critical task in strengthening the macroprudential orientation of the supervisory work. While forward-looking provisioning is known as a useful instrument to mitigate procyclicality, this thesis by contrast addresses the effectiveness of the Spanish dynamic provisioning, which builds up provisions during good times to absorb large losses incurred during economic downturns. By simulating dynamic provisioning using historical data of domestic banks in Taiwan, the thesis makes an insightful empirical comparison between the dynamic provisioning and the traditional provisioning. The results unveil that the dynamic provisioning can effectively reduce the variability of earnings and thus can help to mitigate the procyclicality in the banking system. This thesis also addresses several issues needed to be resolved before the implement of the dynamic provisioning in Taiwan.