A note on the intracyclical balance-sheet behavior of large commercial banks 1972–1978

Abstract

Using a Parkin-type model, this paper tests for the responsiveness of large banks' portfolio decisions to exogenous factors over the period 1972 to 1978. Based upon aggregate weekly data (adjusted for first-order autocorrelation) and a restricted least-squares estimation procedure, the empirical results indicate significant differences in behavior (i.e., structural changes) over the business cycle. Previous studies have implicitly assumed that such behavior is constant over the cycle or that differences over the cycle are not significant. This research shows that the assumption is untenable and that the differences over the cycle are statistically significant. Since these patterns vary over the business cycle, the differences should be incorporated into models of bank balance-sheet behavior to avoid misleading interpretations and implications.