The Procyclicality of Banking

Evidence from the Euro Area

Research output: Working paperDiscussion paperOther research output

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherEuropean Banking Center
Pages49
Volume2019-001
Publication statusPublished - 29 Apr 2019

Publication series

NameEuropean Banking Center
Volume2019-001

Fingerprint

Procyclicality
Banking
Euro area
Loan loss provisions
Provisioning
Capitalization
Euro adoption
Business cycles
Global financial crisis
GDP growth

Keywords

  • procyclicality
  • loan loss provisions

Cite this

Huizinga, H., & Laeven, L. (2019). The Procyclicality of Banking: Evidence from the Euro Area. (pp. 49). (European Banking Center; Vol. 2019-001). Tilburg: European Banking Center.
Huizinga, Harry ; Laeven, Luc. / The Procyclicality of Banking : Evidence from the Euro Area. Tilburg : European Banking Center, 2019. pp. 49 (European Banking Center).
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Huizinga, H & Laeven, L 2019 'The Procyclicality of Banking: Evidence from the Euro Area' European Banking Center, vol. 2019-001, European Banking Center, Tilburg, pp. 49.

The Procyclicality of Banking : Evidence from the Euro Area. / Huizinga, Harry; Laeven, Luc.

Tilburg : European Banking Center, 2019. p. 49 (European Banking Center; Vol. 2019-001).

Research output: Working paperDiscussion paperOther research output

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T1 - The Procyclicality of Banking

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N2 - 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.

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Huizinga H, Laeven L. The Procyclicality of Banking: Evidence from the Euro Area. Tilburg: European Banking Center. 2019 Apr 29, p. 49. (European Banking Center).