How do Banks Respond to NPLs? Evidence from the Euro Area
Brunella Bruno () and
Immacolata Marino ()
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Brunella Bruno: Università Bocconi
CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy
We study how asset quality deterioration influences the way Euro area banks adjust their balance sheets over 2010-2015. Findings from the fixed effect analysis report strong evidence of a negative correlation between asset quality and asset and lending growth. To explore the causality of the nexus, we exploit the 2014 ECB Asset Quality Review exercise in a diff-in-diff framework. We uncover a direct and negative effect of higher NPLs on banks' credit supply. Results are stronger for AQR banks plagued by high level of problem loans located in High-NPLs countries.
Keywords: NPLs; non-performing loans; bank lending; asset quality; AQR (search for similar items in EconPapers)
JEL-codes: G20 G21 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:513
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