The procyclicality of banking: evidence from the euro area

Harry Huizinga and Luc Laeven

No 2288, Working Paper Series from European Central Bank

Abstract: Loan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation of bank capitalization over the business cycle. We estimate that provisioning procyclicality in the euro area is about twice as large as in other advanced economies. This difference reflects a larger procyclicality of provisioning in euro area countries already prior to euro adoption, and the divergent growth experiences of euro area countries following the global financial crisis. JEL Classification: G20

Keywords: accounting; bank capital; banks; financial regulation; financial stability; loan loss provisioning (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-ban and nep-eec
Note: 261593
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Citations: View citations in EconPapers (41)

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Related works:
Journal Article: The Procyclicality of Banking: Evidence from the Euro Area (2019)
Working Paper: The Procyclicality of Banking: Evidence from the Euro Area (2019)
Working Paper: The Procyclicality of Banking: Evidence from the Euro Area (2019)
Working Paper: The Procyclicality of Banking: Evidence from the Euro Area (2019)
Working Paper: The Procyclicality of Banking: Evidence from the Euro Area (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192288

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