Credit Pro-cyclicality and Bank Balance Sheet in Colombia


Portada Borradores de Economía 2013
Series: 
Working Papers
Number: 
762
08
April
2013
Author(s) / Editor(s): 
Franz Hamann, Rafael Hernández, Luisa Fernanda Sil
Publishing House: 
Banco de la República
JEL Classification: 

The recent financial crisis has renewed the interest of economists, both at the theoretical and empirical level, in developing a better understanding of credit and its mechanisms. A rapidly growing strand of the literature views banks as facing funding restrictions that condition their borrowing to a risk-based capital constraint which, in turn, affects bank lending. This work explores the way banks in Colombia manage their balance sheet and sheds light into the dynamics of credit and leverage during the business cycle. Using a sample of monthly bank balance sheets for the period 1994-2012, we find not only that the Colombian banking sector is predominantly pro-cyclical, but also that the composition of bank liabilities provides important information to policy makers regarding the phase of the cycle of the economy. Shifts from low non-core liability ratios to higher ones during the upward phase of the leverage cycle could play the role of an early warning indicator of financial vulnerability. In addition, we find that bank heterogeneity matters and thus, an aggregate measure of bank leverage can mask successfully a fragile financial sector.


The views expressed in this document are those of the authors and not necessarily those of the Banco de la República. Of course, any mistake in this paper is our responsibility

Documento actualizado: 11/04/2013 03:40 p.m.





Category / Classification: 
Documentos en elaboración

Contenido disponible en / Available in:

  • Español
  • English

This content has been translated into English for informational purposes. Upon any query regarding its interpretation or enforceability, the Spanish version shall be deemed official, and will prevail over the English version. The authors of specific texts such as working papers or articles select the language of publication; therefore, there might be cases in which the content may only be available in English. 

-