Cycles and Bank Credit Allocation in EU Countries: An Empirical Study

Abstract

The increase in the amount of commercial papers and the real estate price boom before the 2007-2008 crisis witness a preference for speculative assets by banks. In contrast, after the crisis, banks tended to opt for safe assets, and especially during the Eurozone debt crisis with a sharp increase in deposit facilities from July 2011 to December 2011. This credit allocation can be at the detriment of productive assets; therefore, it can affect the real economy. This paper analyzes empirically the credit allocation of monetary and financial institutions in countries of the European Union over the period 1997-2013. Our results show that risk aversion stands as a main explanation of balance sheet movements. If risk aversion is largely influenced by monetary policy before the crisis, risk perception is uncorrelated to monetary policy afterwards.

Credit Risk Management: An Examination on the Basis of Exposures with Risk Weighting in Greek Banks

“…Banks seem to follow a more speculative policy during an expansion period as opposed to a safer policy during and after the crisis. This is the conclusion of Assoumou Ella and Gauvin, 2015, which distinguishes three categories of assets: speculative assets, safe assets (not including government bonds), and productive assets, (mainly loans to non financial corporation). Risk aversion explains this evolution.…”