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...

The recent debate over the role of prudential regulations in amplifying the cyclicality of bank lending focuses on two fundamental sources of it: capital adequacy regulations and loan loss provisioning system. Previous research shows that loan loss provisioning system can amplify the business...

Business cycles imply liquidity risks for banks. This paper explores how these risks influence bank lending over the cycle. With forward-looking banks, lending cycles, credit booms and busts, or suppressed and highly fragile bank systems can emerge, depending on the magnitude of liquidity risks....

This paper proposes a tractable way to incorporate lending standards ("credit qualification thresholds") into macro models of financial frictions. Banks can reject borrowers whose risk is above an endogenous threshold at which no lending rate sufficiently compensates banks for the borrowers'...

This paper studies optimal bank capital requirements in a model of endogenous bank funding conditions. I find that requirements should be higher during good times such that a macroprudential "buffer" is provided. However, whether banks can use buffers to maintain lending during a financial...

We develop a stylized DSGE model in which banks face capital regulation and their loan portfolios are subject to non-diversifiable losses due to aggregate shocks. The framework is used to explore the importance of the interaction between macroeconomic conditions, credit default and bank...

At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving...

By developing two models to estimate the effect of business cycle on bank's capital buffer and the effect of capital buffer on bank's loan supply on annual panel data (1997-2009) of 63 commercial banks in five ASEAN countries, we find strong evidence of procyclicality pattern of capital buffer...

Procyclicality in banking may result in financial instability and therefore be destructive to economic growth. The sensitivity of different banking balance sheet and income statement variables to the business cycle is diversified and may be prone to increasing integration of financial markets....

In this paper, we ask about the capacity of macroprudential policies to reduce the procyclical impact of capital ratio on bank lending. We focus on aggregated macroprudential policy measures and on individual instruments and test whether their effect on the association between lending and...