Banking: Dynamic Security

Dynamic reserve, also called forecasted loss reserve, is an adjustment of banks' reserves in case of loan defaults due to the effects of the economic cycle, so that reserves will increase during a boom to leave an opportunity or recession, and reserves will be lower during a recession because there is less opportunity for deterioration.

Reducing reserves during a downturn also prevents the erosion of confidence in the stability of banks due to weak and sometimes rapidly weakening balance sheets.

The most influential example of dynamic reserve creation to date is what Spanish banks imposed on Spanish banks during the credit crisis. The following formula was used for this:

g = C + ( - s / C ) C.
Where g is the total reserves,
- the share that is adjusted for new loans (for which there were no specific reserves yet),
C is the size of the loan portfolio , C is the change in C (positive means an increase),
is the average specific position during the economic cycle,
s is the total number of specific reserves,
A specific reserve is a loss that the bank expects to incur on a certain loan, and is created only if there are sufficient grounds to create a reserve for this load.

The effect of applying the general provisions according to this formula is to smooth out the general level of provisions. The second term ( - s/C ) C sets the level of total reserves, so that total reserves will be what they would be on average per cycle: that is, total reserves will be zero in the ideal middle of the cycle. .

The first member, C, adds an additional credit expansion adjustment to account for new risk (when the loan is expanded) and risks removed from the books (when the loan is reduced).

The formula is applied separately to assets belonging to different risk groups, similar to those used for risk-weighted assets.

The introduction of this system in Spain during the serious banking crisis was too late, as it missed the main advantage of dynamic reserve creation - additional reserves created when the economy is strong and lending is expanding. Other countries are following them in similar, albeit less urgent circumstances. Undoubtedly, the next prolonged boom will give banks the opportunity to lobby for the abolition of dynamic reserves in order not to slow down the economy due to credit restrictions.

There has been significant conflict between accounting standards authorities and banking regulators over the desirability of dynamic provisioning. Accountants (and their regulators) want to measure performance, because currently banking regulators want to use accounting metrics to force banks to exercise discretion. Investors should treat both carefully and assess the risks themselves. Şu anda, Ramenbet mobil uygulaması bu kumarhanenin ana tekliflerinden biri değildir, çünkü öncelikle bir mobil tarayıcı üzerinden çalışmaya odaklanmıştır. Bununla birlikte, oyuncular farklı cihazların ekranlarına otomatik olarak uyum sağlayan sitenin uyarlanabilir tasarımı sayesinde akıllı telefonlarında ve tabletlerinde oyunun tadını kolayca çıkarabilirler.