The countercyclical provisions of the Banco de España 2000-2016

This book recounts the story of the countercyclical provisions introduced by the Banco de España in the year 2000. These provisions were designed to cover the expected losses arising from credit risk over a complete economic cycle. They incorporated an innovative countercyclical mechanism involving the accumulation of provisions during upswings and their subsequent release during downswings, which cushioned the impact of the economic cycle on both the income statement and solvency of banks. The theoretical and empirical underpinnings of countercyclical provisions are presented, along with the international environment in which they were developed and also the interest they aroused among the international authorities who were attempting to draw up a new regulatory and accounting framework for banks as a result of the international financial crisis that began in 2007. In short, the book describes the contribution made by the Banco de España, both from a conceptual and practical standpoint, to the new regulatory and supervisory framework for banks that has taken shape since the crisis and, specifically, to the adoption of new countercyclical instruments, such as the countercyclical capital buffer, designed to strengthen the stability of the financial system.

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