Vincent Bouvatier

Bank Income Smoothing, Ownership Concentration and the Regulatory Environment

We empirically examine whether the way a bank might use loan loss provisions to smooth its income is influenced by its ownership concentration and the regulatory environment. Using a panel of European commercial banks, we find evidence that banks with more concentrated ownership use discretionary loan loss provisions to smooth their income. This behavior is less pronounced in countries with stronger supervisory regimes or higher external audit quality. Banks with low levels of ownership concentration do not display such discretionary income smoothing behavior. This suggests the need to improve existing or implement new corporate governance mechanisms.

Provisioning rules and bank lending: A theoretical model

This paper develops a partial equilibrium model of a banking …rm to analyze how provisioning rules inuence loan market uctuations. We show that a backward-looking provisioning system ampli…es the pro-cyclicality of loan market uctuations. We demonstrate that, in a forward-looking provisioning system where statistical provisions are used to smooth the evolution of total loan loss provisions, the issue of pro-cyclicality of loan market uctuations does not exist. Our results support the recent call of the Basel Committee for the implementation of a forward-looking provisioning system to address procyclicality. JEL classi…cation: G21 anonymous referees for their helpful comments. The usual disclaimer applies.

Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons

A dynamic provisioning system is one of the instruments that regulators could use for introducing counter-cyclicality into prudential regulation. The potential e¤ective-ness of such instrument depends on how far actual provisioning practices exacerbate growth in bank lending. We therefore investigate the e¤ects of loan loss provisions on growth in bank lending, making a di¤erence between non discretionary and dis-cretionary loan loss provisions. International comparisons are made between …ve ge-ographical areas : Europe, Japan, the United-States, Central & South American and South & East Asia. Except for Japanese banks, we …nd a negative and signi…cant ef-fect of non discretionary loan loss provisions on growth in bank lending. This common feature lead us to conclude that banking regulators could reach a consensus concerning the bene…cial aspects of a dynamic provisioning system.

Hot money inflows and monetary stability in China: how the People's Bank of China took up the challenge

Nonforeign direct investment capital inflows in China were particularly strong in 2003 and 2004. They have led to a rapid accumulation of international reserves and they may have provided excess liquidity to the Chinese economy. This article, investigates how the central bank of China managed the rapid build-up of international reserves in 2003 and 2004. The relationship between real international reserves and real domestic credit is examined with a Vector Error Correction Model, estimated on monthly data from January 1997 to March 2006. Empirical results show that this relationship was negative, which suggests that the central bank succeeded in slowing down real domestic credit when real international reserves increased. Direct and indirect Granger causality tests are implemented to show how the Peoples Bank of China proceeded to control domestic credit.

Bank Failures and the Source of Strength Doctrine

This paper examines the determinants of bank failures in the US banking system during the recent financial crisis. The analysis employs a dataset on the financial statements of FDIC-insured commercial banks and their bank holding companies, along with information on bank failures, mergers, and acquisitions. The econometric evidence suggests that failed banks have been characterized by significantly higher loan growth rates, well ahead of the financial crisis, coupled with higher exposures to the mortgage market segment and to funding in the form of brokered deposits. We also find evidence that commercial banks have been less likely to fail, when they belonged to well-capitalized and profitable bank holding companies with lower exposures to short-term funding. Our results provide empirical support for the recent modifications in bank regulation and supervision which introduce countercyclical components for capital buffers and a more comprehensive supervision of consolidated banking groups.

Short-run dynamics in bank credit: Assessing nonlinearities in cyclicality

This paper explores whether the procyclicality of private credit changes during the business cycle. To this end, we rely on the estimation of smooth transition regression models for a sample of 17 OECD countries over the 1986–2010 period. Our findings show that credit procyclicality is nonlinear, depending on economic conditions. More specifically, credit is highly procyclical in extreme – booms and busts – regimes in Canada, the UK and the US, while procyclicality is less pronounced in one or both extreme regimes in Australia, Belgium, France, Finland, the Netherlands, Norway, and Spain. Our results also emphasize the importance of financial factors in explaining the short-run behavior of private credit.

On the Link Between Credit Procyclicality and Bank Competition

This paper investigates the relationship between bank competition and credit procyclicality for 17 OECD countries on the 1986-2009 period. We account for heterogeneity among countries in terms of bank competition through the use of a hierarchical clustering methodology. We then estimate panel VAR models for the identified sub-groups of economies to investigate whether credit procyclicality is more important when the degree of bank competition is high. Our findings show that while credit significantly responds to shocks to GDP, the degree of bank competition is not essential in assessing the procyclicality of credit for OECD countries.

Time Dependence in Banking Crises: A Discrete-Time Duration Approach

This paper investigates whether the probability of a banking crisis depends on the time that has elapsed since the last banking crisis. More than two centuries of banking crises are considered, and a discrete-time duration model that is based on a cubic spline methodology is implemented. The results allow to identify when the exposure to a banking crisis is particularly high, which is a major concern for policy makers. The probability of having a new banking crisis noticeably increases over the first decade following a banking crisis. Furthermore, (as expected) the exposure to banking crises is also particularly high following a long period of time without any banking crisis because no country has ever avoided having a banking crisis in the long run. However, between the two extremes, the exposure to a banking crisis decreases, which suggests that countries benefit from a period of increasing stability.