![]() While it is difficult to arrive at firm conclusions on the overall adequacy of current provisions, banks with less capital headroom may be at greater risk of being under-provisioned, possibly due in part to the discretion offered by IFRS 9. This is consistent with banks with less capital using accounting discretion to provision less to preserve their capital. Moreover, provisioning patterns for IFRS 9 loans around default events depend on banks’ capital headroom, with better capitalised banks generally provisioning more. Specifically, the bulk of provisioning occurs at the time of, or shortly after, default under both approaches, which suggests that IFRS 9 has not fundamentally changed provisioning patterns. The results indicate that provisions for a performing IFRS 9 loan are higher than those for a comparable loan reported under national accounting standards, while the dynamics of provisioning ratios around credit events are similar under both approaches. ![]() JEL Code E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors G30 : Financial Economics→Corporate Finance and Governance→GeneralĪbstract This box uses loan-level data from AnaCredit to examine the impact of IFRS 9 on provisioning dynamics around credit events and the role of accounting discretion. Many firms replaced bond funding with bank loans at the start of the pandemic, at the onset of the Russia-Ukraine war and during the recent monetary policy normalisation, potentially crowding out credit to riskier and smaller firms with limited ability to tap bond markets. Findings show that banks tend to offer lower rates than bond markets to larger, better-rated and more leveraged firms, but interest rates are not the only factor behind firms’ financial structure decisions. JEL Code G10 : Financial Economics→General Financial Markets→General G18 : Financial Economics→General Financial Markets→Government Policy and Regulation G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors G28 : Financial Economics→Financial Institutions and Services→Government Policy and RegulationĪbstract The box investigates whether banks step in when market-based credit declines in the face of increased market volatility and rising interest rates. This box examines two of the key vulnerabilities – excessive leverage and inadequate liquidity preparedness to meet margin and collateral calls – and discusses policy implications for enhancing the resilience of the non-bank financial sector. In several cases, extraordinary policy responses by public authorities and central banks helped to stabilise markets and limit contagion. The resulting spikes in the demand for liquidity and/or deleveraging can lead to disorderly asset sales or large cash withdrawals, from money market funds for instance, with spillovers to other financial institutions or markets. We work in 123 countries and territories, combining emergency assistance with long-term development while adapting our activities to the context and challenges of each location and its people.Abstract Recent stress episodes have shown how non-bank financial institutions can amplify stress in the wider financial system when faced with sudden increases in margin and collateral calls. Democratic Republic of the Congo emergency. ![]() We work in 123 countries and territories, combining emergency assistance with long-term development while adapting our activities to the context and challenges of each location and its people.
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