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Banks' procyclical behavior: Does provisioning matter?

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  • Bouvatier, Vincent
  • Lepetit, Laetitia

Abstract

A panel of 186 European banks is used for the period 1992-2004 to determine if banking behaviors, induced by the capital adequacy constraint and the provisioning system, amplify credit fluctuations. We find that poorly capitalized banks are constrained to expand credit. We also find that loan loss provisions (LLP) made in order to cover expected future loan losses (non-discretionary LLP) amplify credit fluctuations. By contrast, LLP used for management objectives (discretionary LLP) do not affect credit fluctuations. The findings of our research are consistent with the call for the implementation of a dynamic provisioning system in Europe.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 18 (2008)
Issue (Month): 5 (December)
Pages: 513-526

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Handle: RePEc:eee:intfin:v:18:y:2008:i:5:p:513-526

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Web page: http://www.elsevier.com/locate/intfin

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Cited by:
  1. López-Espinosa, Germán & Moreno, Antonio & Pérez de Gracia, Fernando, 2011. "Banks' Net Interest Margin in the 2000s: A Macro-Accounting international perspective," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1214-1233, October.
  2. Müller, Oliver & Uhde, André, 2013. "Cross-border bank lending: Empirical evidence on new determinants from OECD banking markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 136-162.
  3. Marina Balboa & Germán López-Espinosa & Antonio Rubia, 2012. "Non-linear Dynamics in Discretionary Accruals: An Analysis of Bank Loan-Loss Provisions," Faculty Working Papers 06/12, School of Economics and Business Administration, University of Navarra.

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