Banksï¿½ Riskiness Over the Business Cicle: a Panel Analysis on Italian Intermediaries
Supervisors and policy makers pay increasing attention to the possible procyclical nature of banksï¿½ behaviour. Indeed, to guarantee macro and financial stability, it is important to understand whether, and to what extent, banks are affected by the macroeconomy and second round effects occur. This paper provides a comprehensive investigation of 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 and non-performing loans show a cyclical pattern. The estimated relations may be employed to carry out stress tests to assess the effects of macroeconomic shocks on banksï¿½ balance sheets.
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