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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 MallickRegulatory 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.
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Publication status
- Published
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- Published version
Journal
Journal of Financial StabilityISSN
1572-3089Publisher
ElsevierExternal DOI
Volume
28Page range
163-180Department affiliated with
- Economics Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2017-10-04First Compliant Deposit (FCD) Date
2017-10-03Usage metrics
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