Identification of Cyclical Banks in Iranian Banking System (Focus on Leverage Ratio)


Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran



he cyclical banks have different behavior than other banks. The structure of the balance sheet in cyclical banks is different from anti-cyclical banks. The cyclical banks have a relationship between leverage growth and asset growth while the other banks have no relationship between asset growth and leverage growth in the banking system. This relationship depends on the structure of the balance sheet and explains how banks behave in the business environment. Banks decide based on economic conditions and their leverage introduces the structure of balance sheet and banking models. This research surveys the behavior of cyclical banks in the Iranian banking system during the period of 2005-2015. According to the results, the Positive relationship between asset growth and leverage growth approves cyclical behavior of leverage. The structure of the balance sheet and a variety of banks is more important to leverage behavior. This paper uses the type of banks and size as the main variable in the Iranian banking system.
The bank should be adjusting its balance sheets based on economic conditions and business. Banks that influence cyclical leverage behavior have a higher share of credits in balance sheets. A higher share of credits explains tending banks for short-term credits.


Acharya, V. & Ryan, S. (2016). Banks' Financial Reporting and Financial System Stability. Journal of Accounting Research, 54(2), 277-340.
Adrian, T. (2014). Financial Stability Policies for Shadow Banking. Federal Reserve Bank of New York Staff Reports, Retrieved from
Adrian, T., & Ashcraft, A. B. (2012). Shadow Bank Regulation. Annual Review of Financial Economics, 4(1), 99-140.
Adrian, T., Ashcraft, A. B. & Cetorell, N. (2013). Shadow Bank Monitoring. Federal Reserve Bank of New York Staff Reports, Retrieved from
Adrian, T., Covitz, D., & Liang, J. N. (2013). Financial Stability Monitoring. Federal Reserve Bank of New York Staff Report, Retrieved from
Adrian, T., & Boyarchenko, N. (2012). Intermediary Leverage Cycles and Financial Stability. Federal Reserve Bank of New York Staff Report, Retrieved from
Adrian, T., Crump, R. K., & Moench, E. (2012). Pricing the Term Structure with Linear Regressions. Federal Reserve Bank of New York Staff Report, Retrieved from
Adrian, T., & Moench, E., & Song Shin, H. (2010). Financial Intermediation, Asset Prices, Macroeconomic Dynamics. Federal Reserve Bank of New York Staff Report, Retrieved from
Adrian, T., & Song Shin, H. (2014). Pro-cyclical Leverage and Value-at-Risk. Review of Financial Studies, 27(2), 373-403.
---------- (2011a). Financial Intermediaries and Monetary Economics. Handbook of Monetary Economics, Retrieved from
---------- (2011b). Financial Intermediary Balance Sheet Management. Annual Review of Financial Economics, Retrieved from
---------- (2010). Liquidity and Leverage. Journal of Financial Intermediation,19(3), 418-437.
---------- (2009a). Money, Liquidity and Monetary Policy. American Economic Review Papers & Proceedings, 99(2), 600-609.
---------- (2009b). Prices and Quantities in the Monetary Policy Transmission Mechanism. International Journal of Central Banking, 5(4), 131-142.
---------- (2008). Financial Intermediaries, Financial Stability, and Monetary Policy. Federal Reserve Bank of Kansas City Jackson Hole Economic Symposium Proceedings, Retrieved from
---------- (2006). Money, Liquidity, and Financial Cycles. Retrieved from
Adrian, T., Etula, E., & Muir, T. (2013). Financial Intermediaries and the Cross Section of Asset Returns. Journal of Finance,Retrieved from
Arnold, B., Borio, C., Ellis, L., & Moshirian, F. (2012). Systemic Risk, Macroprudential Policy Frameworks, Monitoring Financial Systems and the Evolution of Capital Adequacy. Journal of Banking and Finance, 36, 3125-3132.

Aymanns, C., & Farmer, J. D. (2015). The Dynamics of the Leverage Cycle. Journal of Economic Dynamics and Control, 50, 155-179.

Bank for International Settlements. (2009). The Role of Valuation and Leverage in Pro-cyclicality. Committee on the Global Financial System, Retrieved from
Beccalli, E., Boitani, A., &  Di Giuliantonio, S. (2015). Leverage Pro-Cyclicality and Securitization in US Banking. Journal of Financial Intermediation, 24(2), 200-230.
Beltratti, A., & Paladino, G. (2015). Bank Leverage and Profitability: Evidence from a Sample of International Banks. Review of Financial Economics, 27, 46-57.
Bernanke, B., & Gertler, M. (1989). Agency Costs, Net Worth, and Business Fluctuations. American Economic Review, 79, 14-31.
Brunnermeier , M. K., & Pedersen, L. H. (2009). Market Liquidity and Funding Liquidity. Review of Financial Studies, 22(6), 2201-2223.
Damar, E., Meh, C., &  Terajima, Y. (2013). Leverage, Balance-sheet and Wholesale Funding. Journal of Financial Intermediation, 22, 639-662.
Fostel, A., & Geanakoplos, J. (2008). Leverage Cycles and the Anxious Economy. American Economic Review, 98(4), 1211-1244.
Geanakoplos, J. (2003). Liquidity, Default, and Crashes: Endogenous Contracts in General Equilibrium. Cambridge: Cambridge University Press.
Giordana, G., & Schumacher, I. (2013). What are the Bank-specific and Macroeconomic Drivers of Banks’ Leverage? Evidence from Luxembourg. Empircal  Economics, 45(2), 905-928.
Hanson, S. G., Kashyap, A. K., & Stein, J. C. (2011). A Macroprudential Approach to Financial Regulation. Journal of Economic Perspectives, 25(1), 3-28.
Kashyap, A. K., & Stein, J. C. (2000). What Do a Million Observations on Banks Say about the Transmission of Monetary Policy? American Economic Review, 93(3), 407-428.
Kiyotaki, N., & Moore, J. (1997). Credit Chains. Journal of Political Economy, 105(21), 211- 248.
Laux, C., & Rauter, T. (2016). Procyclicality of US Bank Leverage. Retrieved from
Modigliani, F., & Miller, M. M. (1985). The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, 48, 261-297.
Pagratis, S., Karakatsani E., & Louri, H. (2014). Bank Leverage and Return on Equity Targeting: Intrinsic Procyclicality of Short-term Choices. Bank of Greece, Working Paper, Retrieved from
Pedrono, J. (2017). Banking Leverage Procyclicality: A Theoretical Model Introducing Currency Diversification. CEPII Working Paper, Retrieved from
Schularik, M., & Taylor, A. M. (2012). Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crisis (1870-2008). American Economic Review, 102(2), 1029-1061.
Valencia, O. C., & Bolanos, A. O. (2018). Bank Capital Buffers around the World: Cyclical Patterns and the Effect of Market Power. Journal of Financial Stability, Retrieved from