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Banks' Performance over the Business Cycle: A Panel Analysis on Italian Intermediaries

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Mario Quagliariello

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Abstract

Supervisors and policy makers pay increasing attention to the possible procyclical nature of banks’ behaviour. Indeed, to guarantee macro and financial stability, it is important to understand if, and to what extent, banks are affected by the macroeconomy and if there are second round effects. This paper provides a comprehensive investigation on these issues using a large dataset of Italian intermediaries over the period 1985-2002. In particular, estimating both static and dynamic models, it investigates whether loan loss provisions, nonperforming loans and the return on assets show a cyclical pattern. The estimated relations are then employed to carry out simple stress tests aiming at assessing the effects of macroeconomic shocks on banks’ balance sheets.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 04/17.

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Handle: RePEc:yor:yorken:04/17

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Related research
Keywords: banking supervision; loan loss provisions; non-performing loans; procyclicality; stress test;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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References listed on IDEAS
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    Other versions:
  5. Rajan, Raghuram G, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 399-441, May. [Downloadable!] (restricted)
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  9. Mahinder Singh Gill & Paul Louis Ceriel Hilbers & Alfredo Mario Leone & Owen Evens, 2000. "Macroprudential Indicators of Financial System Soundness," IMF Occasional Papers 192, International Monetary Fund. [Downloadable!]
  10. Michele Gambera, 2000. "Simple forecasts of bank loan quality in the business cycle," Emerging Issues, Federal Reserve Bank of Chicago, issue Apr. [Downloadable!]
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  14. Ahmed, Anwer S. & Takeda, Carolyn & Thomas, Shawn, 1999. "Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 1-25, November. [Downloadable!] (restricted)
  15. Andrew P. Meyer & Timothy J. Yeager, 2001. "Are small rural banks vulnerable to local economic downturns?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 25-38. [Downloadable!]
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    Other versions:
  20. repec:pal:imfstp:v:45:y:1998:i:1:p:3 is not listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Beckmann, Rainer, 2007. "Profitability of Western European banking systems: panel evidence on structural and cyclical determinants," Discussion Paper Series 2: Banking and Financial Studies 2007,17, Deutsche Bundesbank, Research Centre. [Downloadable!]
  2. Mario Quagliariello, 2006. "Macroeconomics Uncertainty and Banks' Lending Decisions: The Case of Italy," Discussion Papers 06/02, Department of Economics, University of York. [Downloadable!]
    Other versions:
  3. Juri Marcucci & Mario Quagliariello, . "Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression," Discussion Papers 05/09, Department of Economics, University of York. [Downloadable!]
    Other versions:
  4. Carlo Brambilla & Giandomenico Piluso, 2007. "Are Banks Procyclical? Evidence from the Italian Case (1890-1973)," Department of Economics University of Siena 523, Department of Economics, University of Siena. [Downloadable!]
  5. Giandomenico Piluso & Roberto Ricciuti, 2008. "Fiscal Policy and the Banking System in Italy. Have Taxes, Public Spending and Banks been Procyclical in the Long-Run?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Rita Babihuga, 2007. "Macroeconomic and Financial Soundness Indicators: An Empirical Investigation," IMF Working Papers 07/115, International Monetary Fund. [Downloadable!]
  7. Ugo Albertazzi & Leonardo Gambacorta, 2006. "Bank profitability and the business cycle," Temi di discussione (Economic working papers) 601, Bank of Italy, Economic Research Department. [Downloadable!]
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