Economics & Finance / Finance & Investment / Financial Regulation & Reform

How Spain's Banking Rule Saved (and Nearly Ruined) the Economy: The Dynamic Provisioning Experiment

Macroprudential Policy, Countercyclical Bank Capital Buffers, and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments

Gabriel Jiménez, Steven Ongena, José-Luis Peydró, Jesús Saurina

Most people think banks should save money during good times. But what if that rule could backfire and actually hurt the economy? This video dives into a groundbreaking study from the Journal of Political Economy by Jiménez, et al., analyzing Spain's dynamic provisioning experiment from 2000 to 2013. You'll see how a simple accounting trick—forcing banks to set aside reserves when loans are booming—can either cushion a crisis or trigger a credit crunch. The key insight? Timing is everything. Learn why building buffers during the good times saved jobs and firms in the 2008 crash, but why a similar rule imposed during the bad times in 2012 nearly destroyed the non-real estate sector. This isn't just boring economics—it's a real-world lesson in how policy can make or break an economy. Watch to understand the counterintuitive power of countercyclical capital buffers.