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

Jennifer Betz, Steffen Krüger, Ralf Kellner and Daniel Rösch

Journal of Banking & Finance, 2020, vol. 112, issue C

Abstract: 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.

Keywords: Bank loans; Default resolution time; Credit risk; Systematic effects; Latent factors (search for similar items in EconPapers)
JEL-codes: C23 G21 G33 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:112:y:2020:i:c:s0378426617302224

DOI: 10.1016/j.jbankfin.2017.09.008

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