Macroeconomic effects and frailties in the resolution of non-performing loans

Resolution of non-performing loans is a key determinant of bank credit default losses. This paper analyzes macroeconomic and systematic frailty effects of the default resolution time for a sample of 17,395 defaulted bank loans in USA, Great Britain, and Canada. We find that frailties have a huge imp...

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Bibliographic Details
Published inJournal of banking & finance Vol. 112; p. 105212
Main Authors Betz, Jennifer, Krüger, Steffen, Kellner, Ralf, Rösch, Daniel
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.03.2020
Subjects
Bank loans
Credit risk
Default resolution time
Latent factors
Systematic effects
Default resolution time
Bank loans
C23
G33
G21
Latent factors
Credit risk
Systematic effects
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Summary:Resolution of non-performing loans is a key determinant of bank credit default losses. This paper analyzes macroeconomic and systematic frailty effects of the default resolution time for a sample of 17,395 defaulted bank loans in USA, Great Britain, and Canada. We find that frailties have a huge impact on the resolution times. In a representative sample portfolio, median resolution times more than double in a recession when compared to an expansion. This leads to highly skewed distributions of losses and considerable systematic risk of the bank portfolio.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2017.09.008