Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements
The proposed risk sensitive minimum requirements of the new Basel capital accord have raised concerns about possible (acceleration of) procyclical behaviour of banking, which might threaten macroeconomic stability. This article analyses the interaction between business cycles and banks over the pas...
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| Format: | Article |
| Language: | English |
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Associazione Economia civile
2012-04-01
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| Series: | PSL Quarterly Review |
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| Online Access: | https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/9907 |
| _version_ | 1828042345015148544 |
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| author | Jacob A. Bikker Haixia Hu |
| author_facet | Jacob A. Bikker Haixia Hu |
| author_sort | Jacob A. Bikker |
| collection | DOAJ |
| description |
The proposed risk sensitive minimum requirements of the new Basel capital accord have raised concerns about possible (acceleration of) procyclical behaviour of banking, which might threaten macroeconomic stability. This article analyses the interaction between business cycles and banks over the past two decades for 26 industrial countries. As expected, profits appear to move up and down with the business cycle, allowing for accumulation of capital in boom periods. Provisioning for credit losses rise when the cycle falls, but less so when net income of banks is relatively high, which reduces procyclicality. Lending fluctuates with the business cycle too, but appears to be driven by demand rather than by supply factors such as (shortage of) capital, which contradicts the assumptions underlying capital crunch theory. All in all, over the last decades, distortion caused by procyclical behaviour of banks has been limited, banking crises excepted.
JEL Codes: G21, G28, E32
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| first_indexed | 2024-04-10T17:29:58Z |
| format | Article |
| id | doaj.art-2049489896d742e09a9a645734621d6e |
| institution | Directory Open Access Journal |
| issn | 2037-3635 2037-3643 |
| language | English |
| last_indexed | 2024-04-10T17:29:58Z |
| publishDate | 2012-04-01 |
| publisher | Associazione Economia civile |
| record_format | Article |
| series | PSL Quarterly Review |
| spelling | doaj.art-2049489896d742e09a9a645734621d6e2023-02-03T16:48:17ZengAssociazione Economia civilePSL Quarterly Review2037-36352037-36432012-04-015522110.13133/2037-3643/9907Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirementsJacob A. BikkerHaixia Hu The proposed risk sensitive minimum requirements of the new Basel capital accord have raised concerns about possible (acceleration of) procyclical behaviour of banking, which might threaten macroeconomic stability. This article analyses the interaction between business cycles and banks over the past two decades for 26 industrial countries. As expected, profits appear to move up and down with the business cycle, allowing for accumulation of capital in boom periods. Provisioning for credit losses rise when the cycle falls, but less so when net income of banks is relatively high, which reduces procyclicality. Lending fluctuates with the business cycle too, but appears to be driven by demand rather than by supply factors such as (shortage of) capital, which contradicts the assumptions underlying capital crunch theory. All in all, over the last decades, distortion caused by procyclical behaviour of banks has been limited, banking crises excepted. JEL Codes: G21, G28, E32 https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/9907BankBankingBoomBusiness CycleCreditCycle |
| spellingShingle | Jacob A. Bikker Haixia Hu Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements PSL Quarterly Review Bank Banking Boom Business Cycle Credit Cycle |
| title | Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements |
| title_full | Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements |
| title_fullStr | Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements |
| title_full_unstemmed | Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements |
| title_short | Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements |
| title_sort | cyclical patterns in profits provisioning and lending of banks and procyclicality of the new basel capital requirements |
| topic | Bank Banking Boom Business Cycle Credit Cycle |
| url | https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/9907 |
| work_keys_str_mv | AT jacobabikker cyclicalpatternsinprofitsprovisioningandlendingofbanksandprocyclicalityofthenewbaselcapitalrequirements AT haixiahu cyclicalpatternsinprofitsprovisioningandlendingofbanksandprocyclicalityofthenewbaselcapitalrequirements |