Dynamic provisioning as an automatic stabilizer of the financial instability
Dynamic provisioning as an automatic stabilizer of the financial instability

Summary/Abstract: The pro-cyclical effect of provision is generally agreed and widely discussed in the context of the current financial crisis. The new model of the dynamic provisions applied in Spain showed counter cyclical effects on the credit and business cycle. We simulate development of the dynamic provisions during the financial crisis and discuss the possible consequences. We apply a panel data model of the past credit cycle to calibrate the parameters following the same approach as in the Spanish dynamic provision. Our contribution is in the application of dynamic provisions on the banking systems for the V4 countries.

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