Is the Leverage of European Banks Procyclical?
16 Pages Posted: 12 Feb 2011 Last revised: 3 Sep 2012
Date Written: January 11, 2011
Detecting whether banks' leverage is indeed procyclical is relevant to support the view that booms and crises may be reinforced by some sort of supply side financial accelerator, whilst finding a plausible explanation of banks' behaviour is crucial to trace the road for a sensible reform of financial regulation and managers' incentives. By analyzing a large sample of European banks, we show that procyclical leverage appears to be well entrenched in the behaviour of those banks for which investment banking prevails over the traditional commercial banking activity.
Keywords: Banks, Procyclicality, Financial Regulation
JEL Classification: G21, E3
Suggested Citation: Suggested Citation