Banking Soundness and Monetary Policy


Charles Enoch, and J. Green
Published Date:
September 1997
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Mr. Wang asked whether there should be harmonization in general provisioning among countries, and whether general provisions should be tax deductible. Mr. Ebrill responded that provisioning depended on conditions in each country. On deductibility, he noted that general provisioning is anticipatory and is in effect capital put aside for potential future loss, and does not therefore represent actual economic loss. Nevertheless, tax deductible provisions give incentives for better bank management. Ms. Dziobek noted that the term “general” is used in different ways in different countries, as it is sometimes used to refer to specific provisioning. It would be preferable to use the Basle standards definitions. Mr. Ovi asked whether tax deductibility also applied to the business sector, and noted that if not, this practice would represent a subsidy to the banking sector. Mr. Ebrill noted that provisioning for bad loans was treated similarly in the banking and corporate sectors.

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