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The aim of this paper is to investigate the procyclical behavior of banks in terms of lending and loan loss provisioning, and its dynamics with regard to the adoption of the Basel II capital regulation. Using bank-level and country-level panel data spanning from 1996 to 2013 we answer this question for the OECD and BRIC countries. We find a positive effect of bank capitalization on loans growth, which, perhaps due to the recent financial crisis, weakened after 2008. Together with evidence of income smoothing and capital management we also find strong cyclical behavior of banks in terms of loan loss provisioning. At the same time, we do not find any robust changes to this behavior after the introduction of the Basel II capital regulation. We fill a gap in the empirical literature as there has been hardly any research done on changes brought forward by the adoption of the Basel II capital regulation. The results may be therefore of interest for regulators and other professionals. Moreover, we use in our analysis data for BRIC countries, which have been often neglected.

The aim of the paper is to apply a disequilibrium model on credit market in The Czech Republic and to analyze credit demand and credit supply in period 1994 – 2007. We aim to answer the following questions: What are the main determinants that drive the demand and supply in the Czech Republic’s credit market? What was the development of credit demand and credit supply? Whether the slowdown in the growth of the volume of credits disbursed was caused by demand or supply factors. The degree of equilibrium in the Czech credit market is assessed subsequently. We came to conclusion that the credit demand in the Czech Republic is a function of one-quar- ter-lagged gross domestic product, investments, capital market index PX50 and interest rate on loans. The effects of all variables except for interest rate are in line with expectations. Credit supply in the Czech Republic is a function of deposits, industrial production, interest rate on loans and classified loans. The results suggest that a considerable disequilibrium was typical for Czech credit market over the last ten years. During most of the period, the level of provided loans was determined by credit demand. From the second quarter of 2006, the volume of loans provided has been determined by credit supply. The decline in the volume of credits disbursed during 1998 – 2002 was caused by supply factors. Furthermore, we found that the Czech credit market suffered from a credit crunch in the first half of 2001 when the credit demand overhang substantially exce- eded the limit of double standard deviation.

Successful transformation of the financial system in any transition country is essential precon- dition for efficient transformation of the whole economy. The financial system in the Central Euro- pean countries is traditionally based on banks and credit market. Therefore, we see the necessity for modelling of the credit market and assessment of the factors that determine development of the credit market. The aim of the paper is to analyze long-run relationships in the Czech Repub- lic’s credit market and to reveal significant determinants of the volume of credits disbursed. We apply cointegration analysis and vector error correction modelling on quarterly data to test existen- ce of equilibrium relationships in credit supply and credit demand during the period 1994 – 2007. The results suggest positive influence of GDP and interest rate on the volume of credits provided. However, the VECM estimation does not prove the existence of a statistically significant long-run equilibrium relationship explaining the credit demand. The credit supply frequently and substantia- lly departed from the equilibrium level. The results show that the more available sources the banks have the higher is the volume of credits provided. Likewise, more profitable the lending activity leads to higher volume of credits disbursed. The widest gap between the current credit supply and equilibrium level can be observed in the first half of 2001. At the same time, we witnessed a sharp decline in volume of the credits disbursed. All together can be interpreted as a sign of the credit crunch in the Czech banking sector. The credit supply has exceeded its long-run equilibrium since 2002. Banks probably respond to the growing credit demand and disburse credits as intensively as possible, which would result in deterioration of the credit portfolio quality.