HOW IMPORTANT IS THE ADVERSE FEEDBACK LOOP FOR THE BANKING SECTOR?

• Authors: Geršl Adam , Petr Jakubík
• Languages of publication: EN

Abstracts

EN

Current regulatory framework for EU banks can have potential pro-cyclical effects. Under certain conditions, pro-cyclical behaviour of the banking sector can lead to an adverse feedback loop whereby banks, in response to an economic downswing, engage in deleveraging and reduce their lending to the economy in order to maintain the required capital adequacy ratio. This then further negatively affects economic output and impacts back on banks in the form of, for example, increased loan losses. This effect was simulated on the example of the banking sector of a selected EU country, namely the Czech Republic. The simulation results point out that under certain assumptions the feedback loop may play an important role.

Keywords

EN

PRO-CYCLICAL EFFECT; FEEDBACK LOOP; BANK REGULATION; EU; EUROPEAN UNION; CZECH REPUBLIC

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2012
• Volume: 60
• Issue: 1
• Pages: 32 – 49

Contributors

author

Geršl Adam

• Česká národní banka, Na Příkopě 28, 115 03 Praha 1, Czech Republic

author

Petr Jakubík