0000000000321882
AUTHOR
Steven Ongena
The Cyclicality of Bank Credit Losses and Capital Ratios under Expected Loss Model
We model the evolution of stylised bank loan portfolios to assess the impact of IFRS 9 and US GAAP expected loss model (ECL) on the cyclicality of loan loss provisions (LLPs), realised losses and capital ratios of banks, relative to the incurred loss model of IAS 39. We focus on the interaction between the changes in LLPs charges (the flow channel) and stocks (the stock channel) under ECL. Our results show that, when GDP growth doesn’t demonstrate high volatility, ECL model smooths the impact of credit losses on profits and capital resources, reducing the pro-cyclicality of capital and leverage ratios, especially under US GAAP. However, when GDP growth is highly volatile, the large differen…
Economic Support during the COVID Crisis. Quantitative Easing and Lending Support Schemes in the UK
Abstract We investigate how UK bank business lending responded to the simultaneous use of quantitative easing, leverage ratio capital requirements, and government COVID lending support schemes. We find no evidence that the Brexit wave increased lending to nonfinancial businesses, compared to the previous waves, except for QE-banks subject to the UK leverage ratio, suggesting that the ratio incentivised QE-banks to lend to businesses. The government schemes helped expand lending especially to SMEs post the COVID wave, indicating that complementing QE with other credit easing programmes can reinforce its impact on lending to the real economy. During COVID-stress, changes to the UK leverage ra…
The asset reallocation channel of quantitative easing. The case of the UK
We investigate the impact of the Bank of England's asset purchase program (APP) on the composition of assets of UK banks with unique data on the received reserves injections. The Monetary Policy Committee (MPC) didn't expect there to be strong transmission of the APP's impact through the bank lending channel. We find that compared to the control group, treated banks reallocated their assets towards lower risk-weighted investments, such as government se-curities, but did not provide more credit to the real economy. Overall, our findings suggest that when banks are not adequately capitalised, risk-based capital constraints can limit the effec-tiveness of expansionary unconventional monetary p…