Are capital (and earnings) incentives effective for loan loss provisions?

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dc.description.abstract In order to provide higher incentives for loan loss provisions (LLP) of Brazilian banks when bad times were looming ahead, the discretionary excess in loss loan reserves was recognized temporarily as regulatory capital, in a sort of countercyclical policy. This study explores this regulatory change to investigate the capital management incentives of LLP of Brazilian banks. Results show that banks with less regulatory capital increased relatively more discretionary LLP during the regulatory change but not outside it, suggesting that capital management through discretionary LLP was relevant only during that period. On the other hand, banks with less earnings make less discretionary LLP throughout the sample period, suggesting earnings smoothing was relevant during the whole period. Results are robust to different realized and forward loss controls, different measures of capital before endogenous items, to time varying capital targets and to the recognition of possible varying effects of the global financial crisis across Brazilian banks. en
dc.title Are capital (and earnings) incentives effective for loan loss provisions? en
dc.contributor.author Schechtman, Ricardo
dc.contributor.author Takeda, Tony
dc.date.accessioned 2017-02-23T19:34:33Z
dc.date.available 2017-02-23T19:34:33Z
dc.date.issued 2017-02-23
dc.identifier.uri http://lacer.lacea.org/handle/123456789/61254
lacea.language.supported en
dc.description Working paper
dc.language.iso en
dc.subject Loan Loss Provisions
dc.subject Bank Capital Management
dc.subject Countercyclical Tool
dc.type Working Paper

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