US Bank Loan-Loss Provisions, Economic Conditions, and Regulatory Guidance

US Bank Loan-Loss Provisions, Economic Conditions, and Regulatory Guidance

We differentiate fundamental and discretionary loan-loss provisioning by specifying a balance sheet perspective model with two bank-specific variables and one external economic variable. Based on panel data of US commercial banks between 1990 and 2000, we find that on average, US banks are rational;...

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Veröffentlicht in:Journal of applied finance : JAF 2006-04, Vol.16 (1), p.97
Hauptverfasser: Handorf, William C, Zhu, Lili
Format: Artikel
Sprache:eng
Schlagworte:
Accounting
Balance sheets
Banking industry
Banks
Business cycles
Capital requirements
Commercial banks
Credit risk
Economic conditions
Loan losses
Loans
Net income
Profitability
Profits
Provisions
Recessions
Regulation of financial institutions
Studies
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Zusammenfassung:We differentiate fundamental and discretionary loan-loss provisioning by specifying a balance sheet perspective model with two bank-specific variables and one external economic variable. Based on panel data of US commercial banks between 1990 and 2000, we find that on average, US banks are rational; that is, loan-loss provisions reflect current and projected bank losses. Average-sized banks are more forward-looking (anti-procyclical), which some researchers interpret as income smoothing. The smallest banks and the very largest banks that are "too big to fail" are more backward-looking in provisioning, which some interpret as procyclical. [PUBLICATION ABSTRACT]
ISSN:1534-6668