Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/223234 
Year of Publication: 
2020
Publisher: 
ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected—rather than incurred—credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms— SMEs with shorter credit history, less tangible assets or more defaulted loans—but engage in “search-for-yield” within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
Subjects: 
loan provisions
IFRS9
corporate real and credit supply effects of accounting
bank risk-taking
JEL: 
E31
G18
G21
G28
Document Type: 
Working Paper

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