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Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression

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  • Juri Marcucci
  • Mario Quagliariello

Abstract

This study analyzes the cyclical behaviour of the default rates of Italian bank borrowers over the last two decades. A vector autoregression (VAR) modelling technique is employed to assess the extent to which macroeconomic shocks affect the banking sector (first round effect). The VAR also helps to disentangle the feedback effects from the financial system to the real side of the economy. We find evidence of the first round effect and some support for the feedback effect which operates via the bank capital channel.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 05/09.

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Handle: RePEc:yor:yorken:05/09

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Keywords: First-round effect; procyclicality; feedback effects; VAR; banks; default rate;

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References

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Citations

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Cited by:
  1. Simona Castellani & Chiara Pederzoli & Costanza Torricelli, 2008. "Indebtedness, macroeconomic conditions and banks’ loan losses: evidence from Italy," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08014, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  2. Morone, Marco & Cornaglia, Anna, 2010. "An econometric model to quantify benchmark downturn LGD on residential mortgages," MPRA Paper 25588, University Library of Munich, Germany.
  3. Rui Pascoal, 2012. "Macroeconomic Factors of Household Default. Is There Myopic Behaviour?," GEMF Working Papers 2012-20, GEMF - Faculdade de Economia, Universidade de Coimbra.
  4. Athanasoglou, Panayiotis P. & Daniilidis, Ioannis & Delis, Manthos D., 2014. "Bank procyclicality and output: Issues and policies," Journal of Economics and Business, Elsevier, vol. 72(C), pages 58-83.
  5. Inessa Love & Rima Turk Ariss, 2013. "Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality," Working Papers 201310, University of Hawaii at Manoa, Department of Economics.
  6. Reinout De Bock & Alexander Demyanets, 2012. "Bank Asset Quality in Emerging Markets: Determinants and Spillovers," IMF Working Papers 12/71, International Monetary Fund.
  7. Guarda, Paolo & Rouabah, Abdelaziz & Theal, John, 2012. "An MVAR framework to capture extreme events in macro-prudential stress tests," Working Paper Series 1464, European Central Bank.
  8. Claudia Miani & Giulio Nicoletti & Alessandro Notarpietro & Massimiliano Pisani, 2012. "Banks’ balance sheets and the macroeconomy in the Bank of Italy Quarterly Model," Questioni di Economia e Finanza (Occasional Papers) 135, Bank of Italy, Economic Research and International Relations Area.
  9. Antonella Foglia, 2009. "Stress Testing Credit Risk: A Survey of Authorities' Aproaches," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 9-45, September.
  10. Guglielmo Maria Caporale & Stefano Di Colli & Juan Sergio Lopez, 2013. "Bank Lending Procyclicality and Credit Quality during Financial Crises," Discussion Papers of DIW Berlin 1309, DIW Berlin, German Institute for Economic Research.
  11. Stefano Puddu, 2013. "Optimal Weights and Stress Banking Indexes," IRENE Working Papers 13-02, IRENE Institute of Economic Research.
  12. Abildgren, Kim, 2012. "Business cycles, monetary transmission and shocks to financial stability: empirical evidence from a new set of Danish quarterly national accounts 1948-2010," Working Paper Series 1458, European Central Bank.
  13. Renato Filosa, 2007. "Stress testing of the stability of the Italian banking system: a VAR approach," Heterogeneity and monetary policy 0703, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
  14. Mwanza Nkusu, 2011. "Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies," IMF Working Papers 11/161, International Monetary Fund.
  15. Rasmus Kattai, 2010. "Credit risk model for the Estonian banking sector," Bank of Estonia Working Papers wp2010-01, Bank of Estonia, revised 04 Feb 2010.
  16. Stefano Puddu, 2013. "Real Sector and Banking System: Real and Feedback Effects. A Non-Linear VAR Approach," IRENE Working Papers 13-01, IRENE Institute of Economic Research.
  17. Inessa Love & Rima Turk Ariss, 2013. "Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality," IMF Working Papers 13/271, International Monetary Fund.
  18. Panayiotis P. Athanasoglou & Ioannis Daniilidis, 2011. "Procyclicality in the banking industry: causes, consequences and response," Working Papers 139, Bank of Greece.
  19. Gutierrez Girault, Matias Alfredo, 2008. "Modeling extreme but plausible losses for credit risk: a stress testing framework for the Argentine Financial System," MPRA Paper 16378, University Library of Munich, Germany.
  20. Niyogi Sinha Roy, Tanima & Bhattacharya, Basabi, 2011. "Macroeconomic Stress Testing and the Resilience of the Indian Banking System: A Focus on Credit Risk," MPRA Paper 30263, University Library of Munich, Germany.
  21. Marcucci, Juri & Quagliariello, Mario, 2009. "Asymmetric effects of the business cycle on bank credit risk," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1624-1635, September.
  22. Coffinet, Jérôme & Coudert, Virginie & Pop, Adrian & Pouvelle, Cyril, 2012. "Two-way interplays between capital buffers and credit growth: Evidence from French banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1110-1125.

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