Procyclical leverage: Evidence from banks’ lending and financing decisions

H. Özlem Dursun-de Neef and Alexander Schandlbauer

Journal of Banking & Finance, 2020, vol. 113, issue C

Abstract: Middle-aged people have a higher demand for bank loans compared to other age groups and banks that are active in regions with more middle-aged residents are exposed to higher loan demand. This generates a geographically varying demand for loans. Using this variation, we show that banks increase their loan supply and expand their balance sheet with an increase in their loan demand. They finance this expansion mainly with debt. This leads to a decrease in their Tier 1 ratios and an increase in their leverage, i.e., leverage is procyclical. By differentiating between worse-and better-capitalized banks, we highlight the importance of bank capital in banks’ lending and financing decisions.

Keywords: Bank capital; Bank lending; Geographical segmentation; Leverage; Procyclicality (search for similar items in EconPapers)
JEL-codes: E32 G21 R11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426620300236
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:113:y:2020:i:c:s0378426620300236

DOI: 10.1016/j.jbankfin.2020.105756

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().