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2014 | WPS 3/2014 | 1-34

Article title

What drives heterogeneity of procyclicality of loan loss provisions in the EU?

Content

Title variants

Languages of publication

EN

Abstracts

EN
Using the two step system GMM Blundell and Bond estimator this paper documents a large cross-bank and cross-country variation in the relationship between loan loss provisions (LLP) and the business cycle and explores bank management specific, bank-activity specific and country specific (institutional and regulatory) features that explain this diversity in the European Union. Our results indicate that LLP in large, publicly traded and commercial banks, as well as in banks reporting consolidated statements, are more procyclical. Better investor protection and more restrictive bank capital regulations reduce the procyclicality of LLP. We do not find support for the view that better quality of market monitoring mitigates the sensitivity of LLP to business cycle. Our findings clearly indicate the empirical importance of income smoothing, capital management and credit risk management for decreased procyclicality of LLP.

Year

Issue

Pages

1-34

Physical description

Dates

online
2014-06-15

Contributors

author
  • Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland
  • Department of Econometrics and Operations Research, Cracow University of Economics, Poland
  • Faculty of Management, University of Warsaw, Poland
  • Faculty of Economic and Social Sciences, University of Łódź, National Bank of Poland, Poland

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Document Type

Publication order reference

Identifiers

ISSN
2300-4371

YADDA identifier

bwmeta1.element.desklight-77de072b-46b4-411f-85d9-09c809f443f4
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