A Case Study Of Dynamic Provision In Spain And Analysis Of Application In China

The subprime crisis showed to us that provision requirements under IAS(International Accounting Standards) in operation which was based on the incurred lossmodel was obviously pro-cyclical. And this scheme intensified the subprime crisis. Howto eliminate the pro-cyclicality is the main issue that financial supervision in Post CrisisEra should achieve. Recently, international financial supervision began to study thedynamic provision. Their results showed that dynamic provision could enhance bank’sability to buffer against risks and be used as the complementary tool in restraining thepro-cyclicality in Post Crisis Era. Spain is one of the prior countries using dynamicprovision and its corporation experience is mature. Dynamic provision was introduced in2000in Spain and revised in2004. Although dynamic provision reduced the competitionof banks of Spain in some degree, it made great contribution to resist the finance crisis in2008. In this paper, we make case study on the principle, content, operation and realityoutcome of dynamic provision of Spain. Besides, we use MATLAB programme tosimulate the parts of dynamic provision model and analyse their countercyclicality. Asresults, we found that the stock of dynamic provision under this scheme can overcomethe economic cyclicality. In fact, dynamic provision can’t eliminate the pro-cyclicalitycompletely, but it can weaken the influence of the pro-cyclicality and reduce the loss incrisis.With the development of our finance market, it has been geared to internationalstandards. The great loan loss risk was hidden in our bank system as the result of thedated provision scheme. Thanks to our bank market was not completely open, these risksdidn’t release in crisis in2008. So it is significant for us to draw lessons from theinternational advanced experience. In this paper, we take example by the model andoperation experience of Spain and use the variance set under the instruction of Basel Agreement Ⅲ. Besides, we build our dynamic provision model and adjust the parameterto the change of the economic in order to make the scheme more realistic. In order toanalyse the real outcome of the model, we put datas of loan loss provision in recent yearsinto the model using MATLAB programme to calculate the stock of dynamic provision.According to the outcome, we concluded that the great potential loan loss risk hidden inour credit system which may cause the huge shock to our bank and economy. At last,from the perspective of tax, account, data and management, we came up with someadvice in the policy.