  Credit risk management in Italy is characterized, in the period June 2008 to
June 2012, by frequent (frequency=0.5 cycles per year) and intense (peak
amplitude: mean=39.2 billion Euros, s.e.=2.83 billion Euros) quarterly
contractions and expansions around the mean (915.4 billion Euros, s.e.=3.59
billion Euros) of the nominal total credit used by non-financial corporations.
Such frequent and intense fluctuations are frequently ascribed to exogenous
Basel II procyclical effects on credit flow into the economy and, consequently,
Basel III output based point in time Credit to GDP countercyclical buffering
advocated. We have tested the opposite null hypotheses that such variation is
significantly correlated to actual default rates, and that such correlation is
explained by fluctuations of credit supply around a steady state. We have found
that, in the period June 2008 to June 2012 (n=17), linear regression of credit
growth rates on default rates reveals a negative correlation of r=minus 0.6903
with R squared=0.4765, and that credit supply fluctuates steadily around the
default rate with an Internal Steady State Parameter SSP=0.00245 with chi
squared=37.47 (v=16, P<.005). We conclude that fluctuations of the total credit
used by non-financial corporations are exhaustively explained by variation of
the independent variable default rate, and that credit variation fluctuates
around a steady state. We conclude that credit risk management in Italy has
been effective in parameterizing credit supply variation to default rates
within the Basel II operating framework. Basel III prospective countercyclical
point in time output buffers based on filtered Credit to GDP ratios and dynamic
provisioning proposals should take into account this underlying steady state
statistical pattern.
