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Banks’ procyclical behavior: Does provisioning matter?

Author

Listed:
  • Vincent Bouvatier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Laetitia Lepetit

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

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

Suggested Citation

  • Vincent Bouvatier & Laetitia Lepetit, 2008. "Banks’ procyclical behavior: Does provisioning matter?," Post-Print hal-01098955, HAL.
    • Handle: RePEc:hal:journl:hal-01098955
    DOI: 10.1016/j.intfin.2007.07.004
    Note: View the original document on HAL open archive server: https://hal.science/hal-01098955
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    More about this item

    Keywords

    Bank lending; Loan loss provisions; Capital requirement;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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