Impact of Insolvency Regimes on NPLs: Two Birds in the Bush is Worth One in the Hand

Jean-Charles Bricongne and Mathilde Dufouleur

Working papers from Banque de France

Abstract: This paper examines the impact of insolvency framework reforms on non-performing loans (NPLs), extending prior research by considering both creditor and debtor factors. Using a new metric derived from the European Banking Authority's Transparency Exercises, we focus on the insolvency regime of the debtor's country in cross-border insolvencies. Furthermore, we contribute to the creditor vs. debtor-friendly insolvency regime debate by analysing reforms according to their orientation. Our findings suggest that debtor-oriented reforms are more effective in reducing NPLs, particularly benefiting non-SMEs and large banks in high NPL contexts. Moreover, such reforms have a larger effect in non-debtor and creditor-friendly insolvency regime countries. Finally, we also find that creditor-oriented reforms are associated with higher NPL ratios.

Keywords: Non-Performing Loans; Insolvency Regime; Transparency Exercise; Reform; Banking Sector (search for similar items in EconPapers)
JEL-codes: G3 L72 Q02 Q3 Q42 Q5 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2024
New Economics Papers: this item is included in nep-eec and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:953

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