Macroeconomic Effects and Frailties in the Resolution of Non-Performing Loans
Posted: 27 Feb 2018
Date Written: February 16, 2018
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
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