Macroeconomic Effects and Frailties in the Resolution of Non-Performing Loans

Posted: 27 Feb 2018

See all articles by Jennifer Betz

Jennifer Betz

Independent

Daniel Roesch

University of Regensburg

Ralf Kellner

Saarland University

Steffen Krueger

Independent

Date Written: February 16, 2018

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

JEL Classification: C23, G21, G33

Suggested Citation

Betz, Jennifer and Roesch, Daniel and Kellner, Ralf and Krueger, Steffen, Macroeconomic Effects and Frailties in the Resolution of Non-Performing Loans (February 16, 2018). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3124790

Daniel Roesch

University of Regensburg ( email )

Chair of Statistics and Risk Management
Faculty of Business, Economics and BIS
Regensburg, 93040
Germany

HOME PAGE: http://www-risk.ur.de/

Ralf Kellner

Saarland University ( email )

Stadtwald
Saarbrucken, Saarland D-66123
Germany

Steffen Krueger

Independent ( email )

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