Bank Characteristics and Procyclicality: A Theoretical Approach

DOI: 10.4236/jfrm.2014.33007   PDF   HTML     3,494 Downloads   4,256 Views   Citations


The 2007-2008 crisis highlighted liquidity management troubles. We witness a real estate asset price boom during the pre-crisis period and a difficulty for banks to raise funding afterwards. Consequently, bank choices in response to the conduct of the monetary policy along the cycle can be studied. Despite usual financial accelerator, the excessive (lack of) confidence of banks in the upward (down) phase explains procyclical balance sheet movements. Moreover, the monetary policy effects on bank behaviors vary according to their initial specifications. From a theoretical point of view, this paper examines the response of the banking sector to monetary authorities impulses, in function of their initial characteristics. So, the paper highlights a theoretical model, based on accounting identities, in which banks are distinguished in different categories according to their level of capitalization and liquidity. The principal result is that the less capitalized and liquid banks have more procyclical behaviors.

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Gauvin, M. (2014) Bank Characteristics and Procyclicality: A Theoretical Approach. Journal of Financial Risk Management, 3, 57-66. doi: 10.4236/jfrm.2014.33007.

Conflicts of Interest

The authors declare no conflicts of interest.


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