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on Financial Development and Growth |
| By: | Ugo Albertazzi (Bank of Italy - Economic Research Department); Leonardo Gambacorta (Bank of Italy - Economic Research Department) |
| Abstract: | An important element of the macro-prudential analysis is the study of the link between business cycle fluctuations and banking sector profitability and how this link is affected by institutional and structural characteristics. This work estimates a set of equations for net interest income, non-interest income, operating costs, provisions, and profit before taxes, for banks in the main industrialized countries and evaluates the effects on banking profitability of shocks to both macroeconomic and financial factors. Distinguishing mainly the euro area from Anglo-Saxon countries, the analysis also identifies differences in the resilience of the respective banking systems and relates them to the characteristics of their financial structure. |
| Keywords: | bank profitability, economic cycle, macro-prudential analysis |
| JEL: | C53 G21 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_601_06&r=fdg |
| By: | Proto, Eugenio (University of Warwick, Department of Economics) |
| Abstract: | The likelihood of a banking crisis appears to be higher in fast-developing countries. An explanation is provided in a Diamond and Dybvig framework, where banks are vehicles of consumption-smoothing, offering insurance against shocks to the consumption path of consumers. The theoretical model shows that the higher consumer growth expectations, the higher the optimal level of illiquidity insurance — even if it implies higher exposure bank runs. Empirical evidence supports this result and suggests that the effect of deposit interest rates on the probability of crisis is stronger after a period of high, uniterrupted growth. Policies of providing bail-outs or deposit insurance are demonstrated to be efficient even when they increase the fragility of the banking system. |
| Date: | 2005–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2005_013&r=fdg |