Evidence of Forward-Looking Loan Loss Provisioning with Credit Market Information

Lakshmi Balasubramanyan (), James Thomson and Saeed Zaman

Journal of Financial Services Research, 2017, vol. 52, issue 3, No 2, 223 pages

Abstract: Abstract Our paper makes a fundamental contribution by studying loan loss provisioning over the credit cycle as three distinct phases. Looking at the three distinct phases of the financial crisis – the pre-crisis period, crisis period, and post-crisis period – is important as loan loss provisioning is driven by different factors in each, in part due to extensive shifts in (or in the application of) regulatory rule. Controlling for credit market information using data from the Senior Loan Officer Opinion Surveys (SLOOS) we extend the work of previous studies of forward-looking loan loss provisions using the delayed expected loss recognition approach. We contribute to the growing literature on forward-looking loan loss provisioning and early in the cycle loss recognition by incorporating a broader range of available credit information and explicitly controlling for structural breaks in the sample corresponding to the financial crisis.

Keywords: Loan loss provisioning; Forward-looking; Income smoothing; Capital management; Early loss recognition (search for similar items in EconPapers)
JEL-codes: G18 G21 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10693-016-0255-0

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