How do non-performing loans evolve along the economic cycle? The role of macroeconomic conditions and legal efficiency

Bischof, Jannis ; Rudolf, Nicolas ; Schmundt, Wilhelm

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Document Type: Working paper
Year of publication: 2022
The title of a journal, publication series: Working Paper Series / TRR 266 Accounting for Transparency, SFB/Trangsregio 266
Volume: 66
Place of publication: Mannheim [u.a.]
Publishing house: TRR 266 Accounting for Transparency
Publication language: English
Institution: Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSB (Business Studies)
Subject: 330 Economics
Abstract: We investigate the development of non-performing loans (NPL) held by European banks along the economic cycle. During the global financial crisis and the subsequent sovereign debt crisis, banks from all European countries experienced a substantial increase in NPLs. We find that these increases are mainly associated with macroeconomic determinants and characteristics of banks’ business models. Substantial differences across countries exist in the duration and efficiency of the NPL resolution after the crisis. We exploit cross-country and time-variant differences in insolvency and contract enforcement procedures to document that the outcome of NPL resolution is associated with the duration and the costs of insolvency and contract enforcement during the economic recovery phase. Our findings suggest that the design of a country’s legal regime can ensure a swift NPL resolution during the recovery phase while the build-up of NPLs during a crisis is mainly attributable to economic conditions.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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