Banks' Performance over the Business Cycle: A Panel Analysis on Italian Intermediaries

Discussion Papers from Department of Economics, University of York

Abstract: Supervisors and policy makers pay increasing attention to the possible procyclical nature of banks’ behaviour. Indeed, to guarantee macro and financial stability, it is important to understand if, and to what extent, banks are affected by the macroeconomy and if there are second round effects. This paper provides a comprehensive investigation on these issues using a large dataset of Italian intermediaries over the period 1985-2002. In particular, estimating both static and dynamic models, it investigates whether loan loss provisions, nonperforming loans and the return on assets show a cyclical pattern. The estimated relations are then employed to carry out simple stress tests aiming at assessing the effects of macroeconomic shocks on banks’ balance sheets.

Keywords: banking supervision; loan loss provisions; non-performing loans; procyclicality; stress test (search for similar items in EconPapers)
JEL-codes: E32 E51 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
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