Abstract
The aim of this study is to understand the bank lending behavior during financial crisis, in particular whether an increase of credit risk during this period can lead banks to reduce their lending activity. A second object is to investigate whether cooperative and commercial banks show different behaviors. The analysis is based on a sample of Italian banks (listed and no listed), an example of a country undergoing a credit crunch. The sample consists of 488 listed and unlisted Italian banks observed 2007-2013. Unlisted banks are included because they are the most numerous in the Italian banking system. Findings show a negative impact of credit risk on bank lending behavior, with regard to both credit risk measures: the nonperforming loans and the loan loss provision ratio.
Highlights
IntroductionThe current financial crisis, which started in 2007, is an example of what can go wrong if the banking system does not respect the interplay of growth and risk
This paper investigates the intertemporal relationship between bank lending behavior and credit risk, and asks whether the trend of credit risk has any impact on bank lending behavior
The study focuses on the relationship between non-performing loans and bank lending behavior
Summary
The current financial crisis, which started in 2007, is an example of what can go wrong if the banking system does not respect the interplay of growth and risk In this crisis, the growth in subprime mortgage lending, fueled by low interest rates, booming housing markets and credit securitization has led to unprecedented credit losses and serious consequences for the global economy. The growth in subprime mortgage lending, fueled by low interest rates, booming housing markets and credit securitization has led to unprecedented credit losses and serious consequences for the global economy All this highlights the importance of the growth-risk nexus in bank lending (Dell’Ariccia & Marquez 2006; Demyanyk & van Hemert, 2009; Gorton, 2009). In what is known as the credit crunch, they have reduced credit to retail clients as well as firms
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