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Cross Sectional Facts on Bank Balance Sheets over the Business Cycle

Osman Abbasoğlu (), Şerife Genç İleri () and Yasin Mimir

Central Bank Review, 2015, vol. 15, issue 2, 31-60

Abstract: We investigate the cyclical behavior of commercial banks’ balance sheet variables for different size groups using bank-level Turkish data. We first rank banks based on the size of their assets, and then systematically document business cycle facts of various balance sheet items and profitability measures of different bank groups. We find that the cyclical behavior of these variables is quite heterogeneous at the cross-sectional level: (i) Bottom 25 percent banks finance 30 percent of their assets with equity while for larger banks this ratio is around 12 percent, implying that debt financing is more prevalent for larger banks, (ii) bank assets and credits are highly procyclical and the level of procyclicality is lower for larger banks, (iii) security holdings of small banks are countercyclical whereas those of large banks are procyclical, (iv) total deposits are procyclical except for top 25 percent and equity issuance is acyclical to countercyclical at best, (v) loan spread is strongly countercyclical except for small banks while return on assets and equity are acyclical, and (vi) switching between debt and equity financing is more pronounced for the top 25 percent banks. The rich set of cross-sectional empirical facts about the cyclicality of bank balance sheets presented in this paper should be helpful for researchers to build and evaluate theoretical heterogeneous models about financing sources of banks.

Keywords: Debt finance; Equity finance; Banking sector; Business cycles (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 G28 (search for similar items in EconPapers)
Date: 2015
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