University of Sussex
Browse

File(s) under permanent embargo

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

journal contribution
posted on 2023-06-09, 07:41 authored by Mostak AhamedMostak Ahamed, Sushanta Mallick
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.

History

Publication status

  • Published

File Version

  • Published version

Journal

Journal of Financial Stability

ISSN

1572-3089

Publisher

Elsevier

Volume

28

Page range

163-180

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2017-10-04

First Compliant Deposit (FCD) Date

2017-10-03

Usage metrics

    University of Sussex (Publications)

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC