B1941
Title: Macroprudential policy, governance, openness and finance and loan loss provisions of European banks
Authors: Malgorzata Olszak - University of Warsaw (Poland) [presenting]
Sylwia Roszkowska - Jagiellonian University (Poland)
Christophe Godlewski - University of Strasbourg (France)
Abstract: The aim is to find out whether macroprudential policies affect the sensitivity of loan-loans provisions and of income-smoothing to governance, capital account openness and financial development. To answer this question, a unique database is applied on macroprudential policies collected by the European Central Bank experts and a huge database on individual banks operating in 28 European countries from 1996 - 2019. The analysis shows that stronger governance is associated with decreased loan-loss provisions. This effect is strengthened when the macroprudential policy is tightened. The same effect is found for capital openness and financial structure. Increased governance and openness are linked to more income-smoothing with loan-loss provisions. Macroprudential policies do not alter this effect in a statistically significant way. The results also show that tightening lending standards restrictions and limits on credit growth results in increased loan-loss provisions in countries with more efficient governance structures. The opposite effect is found for levies, liquidity standards and loan-loss provisioning. Income-smoothing is reduced due to the tightening of liquidity standards in countries with more effective governance.
