Banks' Procyclical Behavior: Does Provisioning Matter?

Posted: 15 Aug 2005 Last revised: 22 Mar 2014

See all articles by Vincent Bouvatier

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Date Written: 2008

Abstract

A panel of 186 European banks is used for the period 1992-2004 to determine if banking behaviors, induced by the capital adequacy constraint and the provisioning system, amplify credit fluctuations. We find that poorly capitalized banks are constrained to expand credit. We also find that loan loss provisions (LLP) made in order to cover expected future loan losses (non discretionary LLP) amplify credit fluctuations. By contrast, LLP used for management objectives (discretionary LLP) do not affect credit fluctuations. The findings of our research are consistent with the call for the implementation of a dynamic provisioning system in Europe.

Keywords: bank lending, loan loss provisions, capital requirement

JEL Classification: G21

Suggested Citation

Bouvatier, Vincent and Lepetit, Laetitia, Banks' Procyclical Behavior: Does Provisioning Matter? (2008). Journal of International Financial Markets, Institutions and Money, Vol. 18, pp. 513-528, 2008. Available at SSRN: https://ssrn.com/abstract=777284 or http://dx.doi.org/10.2139/ssrn.777284

Vincent Bouvatier (Contact Author)

University Paris-Est Créteil (UPEC) - ERUDITE ( email )

Mail des Mèches
61 avenue du Général de Gaulle
Créteil Cedex, 94010
France

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,506
PlumX Metrics