Banks’ procyclical behavior: Does provisioning matter?

Vincent Bouvatier and Laetitia Lepetit

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Abstract: A panel of 186 European banks is used for the period 1992-2004 to determine if banking be-haviors, induced by the capital adequacy constraint and the provisioning system, amplify credit uctuations. We …nd that poorly capitalized banks are constrained to expand credit. We also …nd that loan loss provisions (LLP) made in order to cover expected future loan losses (non discretionary LLP) amplify credit uctuations. By contrast, LLP used for management objectives (discretionary LLP) do not a¤ect credit uctuations. The …ndings of our research are consistent with the call for the implementation of a dynamic provisioning system in Europe. JEL classi…cation: G21

Keywords: Bank lending; Loan loss provisions; Capital requirement (search for similar items in EconPapers)
Date: 2008
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Published in Journal of International Financial Markets, Institutions and Money, 2008, 18, pp.513 - 526. ⟨10.1016/j.intfin.2007.07.004⟩

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Journal Article: Banks' procyclical behavior: Does provisioning matter? (2008)
Working Paper: Banks' procyclical behavior: Does provisioning matter? (2008)
Working Paper: Banks' Procyclical Behavior: Does Provisioning Matter? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01098955

DOI: 10.1016/j.intfin.2007.07.004

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