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

  • Mario Quagliariello

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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  1. Maria Soledad Martinez Peria & Giovanni Majnoni & Matthew T. Jones & Winfrid Blaschke, 2001. "Stress Testing of Financial Systems; An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 01/88, International Monetary Fund.
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  10. Laeven, Luc & Majnoni, Giovanni, 2001. "Loan loss provisioning and economic slowdowns : too much, too late?," Policy Research Working Paper Series 2749, The World Bank.
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  18. Brenda González-Hermosillo, 1999. "Determinants of Ex-Ante Banking System Distress; A Macro-Micro Empirical Exploration of Some Recent Episodes," IMF Working Papers 99/33, International Monetary Fund.
  19. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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