Does regulatory forbearance matter for bank stability? Evidence from creditors’ perspective

Citation data:

Journal of Financial Stability, ISSN: 1572-3089, Vol: 28, Page: 163-180

Publication Year:
2017
Usage 101
Abstract Views 100
Link-outs 1
Social Media 132
Shares, Likes & Comments 132
Citations 1
Citation Indexes 1
DOI:
10.1016/j.jfs.2017.01.001
Author(s):
M. Mostak Ahamed, Sushanta Mallick
Publisher(s):
Elsevier BV
Tags:
Economics, Econometrics and Finance
article description
Regulatory forbearance in times of corporate distress has been a common practice in many countries to achieve bank stability, particularly so in the absence of a unified bankruptcy code, yet very little is known in the context of emerging market economies. Exploiting variation of membership across banks in a corporate debt restructuring programme (CDR) sponsored by the central bank in India, this paper finds that the banks that made use of regulatory forbearance (RF) on the restructured corporate loans could increase their stability significantly due to the extension of low provisioning on restructured loans. However, the positive effect of RF diminishes at higher levels of market power, highlighting that member banks with higher market power tend to originate riskier assets (as reflected in their risk-weighted assets) under the auspices of this programme. Our results remain robust to different estimators (including propensity score matching), ownership structure, and alternative measures of bank stability.

This article has 0 Wikipedia mention.