Procyclical leverage: Evidence from banks' lending and financing decisions

Özlem Dursun-de Neef*, Alexander Schandlbauer*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


Middle-aged people have a higher demand for bank loans compared to other age groups and banks that are active in regions with more middle-aged residents are exposed to higher loan demand. This generates a geographically varying demand for loans. Using this variation, we show that banks increase their loan supply and expand their balance sheet with an increase in their loan demand. They finance this expansion mainly with debt. This leads to a decrease in their Tier 1 ratios and an increase in their leverage, i.e., leverage is procyclical. By differentiating between worse-and better-capitalized banks, we highlight the importance of bank capital in banks' lending and financing decisions.
Original languageEnglish
Article number105756
JournalJournal of Banking & Finance
Publication statusPublished - 2020


  • Bank capital
  • Procyclicality
  • Geographical segmentation
  • Bank lending
  • Leverage


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