Lending Cycles

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Juan Sergio LopezFedercasse, Rome March 2015Abstract This paper uses data from a panel of more than 400 Italian banks for the period 2001 -2012 to examine the main determinants of loan loss provision (LLP), which are classified as either discretionary (income smoothing, capital management, signalling) or non-discretionary (related to the business cycle). The results suggest that LLP in Italian banks is driven mainly by non-discretionary components, especially during the recession of 2008-2012, and is consistent with a countercyclical behavior of LLP. Further, it is generally less pro-cyclical (although not during the recent economic crisis) in the case of local banks: since their loans are more collateralised, their behaviour is more strongly affected by supervisory activity, their initial coverage ratio being lower than for other banks. JEL classification: G21, G28

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“…Asea and Blomberg (1998) recessions in Italy, and also that it can be partially explained by the lending policy adopted during good times.…”

Section: Literature Reviewmentioning

confidence: 99%

Loan Loss Provision: Some Empirical Evidence for Italian Banks

et al. 2015

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“…Changes in bank credit standards during the business cycle are reflected in total financing, the cost of borrowing (lending rate and other charges, Asea and Blomberg, 1998, Bliss and Kaufman, 2003, Jimenez and Saurina, 2006, Cappiello et al, 2010and Bernanke and Lown, 1991, the amount of collateral required (Jimenez and Saurina, 2006) and maturity (Gordy and Howells, 2006). Banks tend to significantly ease their credit standards during the upturns and stiffen them during downturns.…”

Section: Demand and Supply Of Loansmentioning

confidence: 99%

Bank procyclicality and output: Issues and policies

Athanasoglou¹,

Daniilidis

Delis

2014

Journal of Economics and Business

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The recent global financial crisis has highlighted the importance of the procyclicality of the financial sector. The procyclicality has transformed banks from mitigation mechanisms to amplifiers of changes in economic activity, potentially affecting financial stability and economic growth. The causes of procyclicality can be attributed to market imperfections and deviations from the efficient market hypothesis, while other factors including the Basel-type regulations, accounting standards and leverage have exacerbated it. Several suggestions have been forwarded to attenuate procyclicality, in the form of rules and discretion. They are presented here according to the factors they aim to alleviate. Some of the suggestions have been adopted under the Basel III framework, which explicitly addresses the procyclicality issue.

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“…An additional feature of our model that seems to be consistent with stylized evidence is that our endogenous reversion mechanism is driven by changes in lending standards. In a study that analyzes contract terms of commercial and industrial loans over a sixteen year period, Asea and Blomberg [4] find that bank lending standards do in fact change over the business cycle and seem have a significant effect on the dynamics of the latter. More interestingly, their conclusions seem to support the view that "during booms asymmetric information in credit markets may cause good projects to draw in bad ones", generating "the opposite of Akerlof's celebrated Lemon's principle."…”

Section: Introductionmentioning

confidence: 99%

Endogenous Credit Cycles

Martín

2005

SSRN Journal

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We propose an adverse selection framework in which the financial sector has a dual role. It amplifies or dampens exogenous shocks and also generates endogenous fluctuations. We fully characterize constrained optimal contracts in a setting in which entrepreneurs need to borrow and are privately informed about the quality of their projects. Our characterization is novel in analyzing pooling and separating allocations in a context of multi-dimensional screening: specifically, the amounts of investment undertaken and of entrepreneurial net worth are used to screen projects.We then embed these results in a dynamic competitive economy. First, we show how endogenous regime switches in financial contracts may generate fluctuations in an economy that exhibits no dynamics under full information. Unlike previous models of endogenous cycles, our result does not rely on entrepreneurial net worth being counter-cyclical or inconsequential for determining investment. Secondly, the model shows the different implications of adverse selection as opposed to pure moral hazard. In particular, and contrary to standard results in the macroeconomic literature, the financial system may dampen exogenous shocks in the presence of adverse selection.

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Lending Cycles

Cited by 96 publications

References 0 publications

Loan Loss Provision: Some Empirical Evidence for Italian Banks

Loan Loss Provision: Some Empirical Evidence for Italian Banks

Bank procyclicality and output: Issues and policies

Endogenous Credit Cycles

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