Banks� riskiness over the business cycle: a panel analysis on Italian intermediaries

• Autores: M. Quagliariello
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 17, Nº. 1-3, 2007, págs. 119-138
• Idioma: inglés
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• Resumen

  • A comprehensive investigation is provided on the issue of the possible cyclical nature of banks� behaviour using a large panel of Italian intermediaries over the period 1985 to 2002. Estimating both static and dynamic models, the article investigates whether loan loss provisions and non-performing loans show a cyclical pattern. The econometric results confirm that business cycle affects banks� loan loss provisions and new bad debts. The impact of recessionary conditions is significant and long-lasting. Moreover, the empirical evidence provides some support for the income-smoothing hypothesis. The estimated relations may be employed to carry out stress tests to assess the effects of macroeconomic shocks on banks' balance sheets.