Cross Sectional Facts on Bank Balance Sheets over the Business Cycle

Title:

Cross Sectional Facts on Bank Balance Sheets over the Business Cycle

Number:

14/17

Author(s):

Osman Furkan Abbasoğlu, Şerife Genç, Yasin Mimir

Language:

English

Date:

May 2014

Abstract:

We investigate the cyclical behavior of banks' balance sheet variables for different size groups using bank-level Turkish data. We first rank banks based on the size of their assets, and then systematically document business cycle facts of various balance sheet items and profitability measures of different bank groups. We find that the cyclical behavior of these variables is quite heterogeneous at the cross-sectional level: (i) Bottom 25 percent banks finance 73 percent of their asset growth with equity while larger banks fund 55 percent of it with deposits, (ii) bank assets and bank credit are highly procyclical and the level of procyclicality is lower for larger banks, (iii) total deposits are procyclical except for top 25 percent and equity issuance is acyclical to countercyclical at best, (iv) loan spread is strongly countercyclical except for small banks while return on assets and equity are acyclical, and (v) switching between debt and equity financing is more pronounced for the top 25 percent and the aggregate banking sector compared to the bottom 25 percent and top 5 percent. The rich set of cross-sectional empirical facts about the cyclicality of bank balance sheets presented in this paper should be helpful for researchers to build and evaluate theoretical heterogeneous models about financing sources of banks.

Keywords:

Debt finance, Equity finance, Banking sector, Business cycle

JEL Codes:

E44; E51; G21; G28