Skip to main content

Macro-financial linkages and bank behaviour: evidence from the second-round effects of the global financial crisis on East Asia


This paper studies the link between macro-financial variability and bank behaviour, which justifies the second-round effects of the global financial crisis on East Asia. Following Gallego et al. (The impact of the global economic and financial crisis on Central Eastern and South Eastern Europe (CESEE) and Latin America, 2010), the second round effects are defined as the adverse feedback loop from the slumps in economic activities and sharp financial market deterioration, which may influence the financial performance of bank, inter alia via deteriorating credit quality, declining profitability and increasing problems in retaining necessary capitalization. Differentiating itself from other research, this study stresses adjustments in four dimensions of bank performance and behaviour: asset quality, profitability, capital adequacy, and lending behaviour, assuming that any change in a bank-specific characteristic is induced by endogenous adjustments of the others. The empirical results based on partial adjustment models and two-step system GMM estimation show that bank’s adjustment behaviour is subject to the variation in the macro-financial environment and the stress condition in the global financial market. There is no convincing evidence to support the effectiveness of policy rate cut to boots bank lending and to avoid a financial accelerator effect.

This is a preview of subscription content, access via your institution.


  1. See IMF Country Report No. 10/288. Indonesia: Financial System Stability Assessment.

  2. See BIS paper No. 52: “The international financial crisis: timeline, impact and policy responses in Asia and the Pacific” by the staff at The BIS Asian Programme.

  3. The paper focuses on six ASEAN countries which were strongly affected by the 1997–1998 financial crisis and two financial centres of the region (Hong Kong and Japan) as they have played a very important role in the credit market of Asia.


  • Aisen, A., Franken, M. (2010). Bank credit during the 2008 financial crisis: a cross-country comparison. IMF Working Papers, 1–25. Retreived from:

  • Alfon, I., Argimón, I., Bascuñana-Ambrós, P. (2005). How individual capital requirements affect capital ratios in UK banks and building societies. Retrieved from: Accessed 16 Mar 2015

  • Alves, I. (2005). Sectoral Fragility: Factors and Dynamics. Investigating the Relationship between the Financial and Real Economy. Retrieved from: Accessed 22 Mar 2015

  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297.

    Article  Google Scholar 

  • Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136.

    Article  Google Scholar 

  • Ayuso, J., Pérez, D., & Saurina, J. (2004). Are capital buffers pro-cyclical?: Evidence from Spanish panel data. Journal of Financial Intermediation, 13(2), 249–264.

    Article  Google Scholar 

  • Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance, 21(6), 849–870.

    Article  Google Scholar 

  • Berger, A. N., & Udell, G. F. (2004). The institutional memory hypothesis and the procyclicality of bank lending behavior. Journal of Financial Intermediation, 13(4), 458–495.

    Article  Google Scholar 

  • Bernanke, B. S., & Blinder, A. S. (1989). Credit, money, and aggregate demand. National Bureau of Economic Research Cambridge, Mass., USA. Retrieved from: Accessed 30 Jul 2015

  • Bernanke, B., Gertler, M., Gilchrist, S. (1994). The financial accelerator and the flight to quality. Retrieved from: Accessed 16 Mar 2015.

  • Bernanke, B. S., & Gertler, M. (1995). Inside the black box: the credit channel of monetary policy transmission (No. w5146). National bureau of economic research. Retrieved from: Accessed 30 Jul 2015

  • Blum, J., & Hellwig, M. (1995). The macroeconomic implications of capital adequacy requirements for banks. European Economic Review, 39(3), 739–749.

    Article  Google Scholar 

  • Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.

    Article  Google Scholar 

  • Borio, C., Furfine, C., & Lowe, P. (2001). Procyclicality of the financial system and financial stability: issues and policy options. BIS Papers, 1, 1–57.

    Google Scholar 

  • Calomiris, C. W., & Hubbard, R. G. (1990). Firm Heterogeneity, Internal Finance, and Credit Rationing. National Bureau of Economic Research Cambridge, Mass., USA. Retrieved from: Accessed 30 Jun 2015.

    Google Scholar 

  • Castrén, O., Dées, S., Zaher, F. (2008). Global macro-financial shocks and expected default frequencies in the euro area. Retrieved from: Accessed 16 Mar 2015

  • Davydenko, A. (2010). Determinants of bank profitability in Ukraine. Undergraduate Economic Review, 7(1), 2.

    Google Scholar 

  • Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379–408.

    Article  Google Scholar 

  • Dewatripont, M., & Tirole, J. (1994). The prudential regulation of banks. Retrieved from: Accessed on 30 Apr 2015.

  • Diemer, M., & Vollmer, U. (2015). What makes banking crisis resolution difficult? Lessons from Japan and the Nordic Countries. Eurasian Economic Review, 5(2), 251–277.

    Article  Google Scholar 

  • Düllmann, K., Erdelmeier, M. (2009). Stress testing German banks in a downturn in the automobile industry: Discussion Paper Series 2: Banking and financial studies.

  • Dumičić, M., & Ridžak, T. (2012). Determinants of Banks’ Net Interest Margins in the CEE. Zagreb: HNB.

    Google Scholar 

  • Filardo, A., George, J., Loretan, M., Ma, G., Munro, A., Shim, I., & Zhu, H. (2010). The international financial crisis: timeline, impact and policy responses in Asia and the Pacific. BIS Papers, 52, 21–82.

    Google Scholar 

  • Flamini, V., Schumacher, L., & McDonald, C. A. (2009). The determinants of commercial bank profitability in Sub-Saharan Africa: International Monetary Fund. Retrieved from: Accessed 30 Apr 2015.

  • Furlong, F. T., & Keeley, M. C. (1989). Capital regulation and bank risk-taking: a note. Journal of Banking and Finance, 13(6), 883–891.

    Article  Google Scholar 

  • Gallego, S., Gardó, S., Martin, R., Molina, L., & Serena, J. M. (2010). The impact of the global economic and financial crisis on Central Eastern and South Eastern Europe (CESEE) and Latin America (No. 1002). Banco de Espa a. Retrieved from: Accessed 30 Jun 2015.

  • Goddard, J., Liu, H., Molyneux, P., & Wilson, J. O. (2011). The persistence of bank profit. Journal of Banking and Finance, 35(11), 2881–2890.

    Article  Google Scholar 

  • Goodhart, C., Hofmann, B., & Segoviano, M. (2004). Bank regulation and macroeconomic fluctuations. Oxford Review of Economic Policy, 20(4), 591–615.

    Article  Google Scholar 

  • Guo, K., & Stepanyan, V. (2011). Determinants of bank credit in emerging market economies. IMF Working Papers, 1–20.

  • Hellmann, T. F., Murdock, K. C., & Stiglitz, J. E. (2000). Liberalization, moral hazard in banking, and prudential regulation: Are capital requirements enough? American Economic Review, 147-165.

  • Holmstrom, B., & Tirole, J. (1997). Financial intermediation, loanable funds, and the real sector. The Quarterly Journal of Economics, 112(3), 663–691.

    Article  Google Scholar 

  • Ivashina, V., & Scharfstein, D. (2010). Bank lending during the financial crisis of 2008. Journal of Financial Economics, 97(3), 319–338.

    Article  Google Scholar 

  • Jacobson, T., Lindé, J., & Roszbach, K. (2005). Exploring interactions between real activity and the financial stance. Journal of Financial Stability, 1(3), 308–341.

    Article  Google Scholar 

  • Jokipii, T., & Milne, A. (2008). The cyclical behaviour of European bank capital buffers. Journal of Banking & Finance, 32(8), 1440–1451.

    Article  Google Scholar 

  • Karminsky, A. M., & Kostrov, A. (2014). The probability of default in Russian banking. Eurasian Economic Review, 4(1), 81–98.

    Article  Google Scholar 

  • Kashyap, A. K., & Stein, J. C. (2000). What do a million observations on banks say about the transmission of monetary policy? American Economic Review, 407–428.

  • Kiyotaki, N., & Moore, J. (1995). Credit cycles. Retrieved from: Accessed 30 May 2015.

  • Lahmann, W. (2012). Contagion effects between sovereign and bank credit spreads—a global analysis of interdependencies between sovereign and bank CDS spreads. Available at SSRN 1994866.

  • Lindquist, K.-G. (2004). Banks’ buffer capital: how important is risk. Journal of International Money and Finance, 23(3), 493–513.

    Article  Google Scholar 

  • Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2012). Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance, 36(4), 1012–1027.

    Article  Google Scholar 

  • Mishkin, F. S. (1999). International capital movements, financial volatility and financial instability. Retrieved from: Accessed 30 Jun 2015.

  • Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: a note. Journal of Banking and Finance, 16(6), 1173–1178.

    Article  Google Scholar 

  • Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574–592.

    Article  Google Scholar 

  • Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 49(6), 1417–1426.

    Article  Google Scholar 

  • Pangestu, M. (2003). The Indonesian bank crisis and restructuring: Lessons and implications for other developing countries: UN. Retrieve from Accessed 20 Jun 2015.

  • Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), 222–237.

    Article  Google Scholar 

  • Peek, J., & Rosengren, E. S. (2000). Collateral damage: Effects of the Japanese bank crisis on real activity in the United States. American Economic Review, 30–45.

  • Pomerleano, M. (2009). What is the impact of the global financial crisis on the banking system in East Asia? ADBI Working Paper Series, No.146. Tokyo: Asian Development Bank Institute.. Retrieved from Accessed 30 Jun 2015.

  • Rime, B. (2001). Capital requirements and bank behaviour: empirical evidence for Switzerland. Journal of Banking and Finance, 25(4), 789–805.

    Article  Google Scholar 

  • Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics, 71(1), 135–158.

    Article  Google Scholar 

  • Schaeck, K., & Cihak, M. (2012). Banking competition and capital ratios. European Financial Management, 18(5), 836–866.

    Article  Google Scholar 

  • Segoviano Basurto, M., & Padilla, P. (2007). Portfolio credit risk and macroeconomic shocks: applications to stress testing under data-restricted environments. Retrieve from Accessed 30 Jun 2015.

  • Shrieves, R. E., & Dahl, D. (1992). The relationship between risk and capital in commercial banks. Journal of Banking and Finance, 16(2), 439–457.

    Article  Google Scholar 

  • Somoye, R. O. C., & Ilo, B. M. (2009). The impact of macroeconomic instability on the banking sector lending behavior in Nigeria. Journal of Money, Investment and Banking, 7, 88–100.

    Google Scholar 

  • Sorge, M., & Virolainen, K. (2006). A comparative analysis of macro stress-testing methodologies with application to Finland. Journal of Financial Stability, 2(2), 113–151.

    Article  Google Scholar 

  • Stolz, S., & Wedow, M. (2005). Banks’ regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks. Retrieved from: Accessed 30 May 2015.

  • Talavera, O., Tsapin, A., Zholud, O. (2006). Macroeconomic Uncertainty and Bank Lending: The Case of Ukraine. Retrieved from: Accessed 30 May 2015.

  • Trujillo-Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Accounting and Finance, 53(2), 561–586.

    Article  Google Scholar 

  • Vong, P., & Chan, H. S. (2009). Determinants of bank profitability in Macao. Macau Monetary Research Bulletin, 12(6), 93–113.

    Google Scholar 

  • Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1), 25–51.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations


Corresponding author

Correspondence to Chau H. A. Le.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Le, C.H.A. Macro-financial linkages and bank behaviour: evidence from the second-round effects of the global financial crisis on East Asia. Eurasian Econ Rev 6, 365–387 (2016).

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI:


  • Bank behaviour
  • Macro-financial linkages
  • Global financial crisis
  • Financial contagion
  • The second round effect

JEL Classification

  • G21
  • F61
  • F62
  • F65