Loan Loss Provisioning, Bank Credit and the Real Economy

34 Pages Posted: 23 Oct 2014

See all articles by Sebastiaan Pool

Sebastiaan Pool

De Nederlandsche Bank - Research Department

Leo de Haan

De Nederlandsche Bank

Jan P. A. M. Jacobs

University of Groningen - Faculty of Economics and Business

Date Written: October 22, 2014

Abstract

This paper examines how credit risk affects bank lending and the business cycle. We estimate a panel Vector Autoregression model for an unbalanced sample of 12 OECD countries over the past two to three decades, consisting of the output gap, inflation, the short-term interest rate, bank lending, as well as loan loss provisioning by banks (as proxy for credit risk). Our main findings are that: (i) bank lending and loan loss provisioning are important drivers of business cycle fluctuations, (ii) loan loss provisioning decreases in relative terms as bank lending increases, and (iii) bank lending is primarily affected by output fluctuations.

Keywords: loan loss provisioning, bank lending, business cycle

JEL Classification: E44, G21

Suggested Citation

Pool, Sebastiaan and de Haan, Leo and Jacobs, Jan P.A.M., Loan Loss Provisioning, Bank Credit and the Real Economy (October 22, 2014). De Nederlandsche Bank Working Paper No. 445. Available at SSRN: https://ssrn.com/abstract=2513697 or http://dx.doi.org/10.2139/ssrn.2513697

Sebastiaan Pool (Contact Author)

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Leo de Haan

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands
+31 20 5243539 (Phone)
+31 20 5242514 (Fax)

Jan P.A.M. Jacobs

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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