Loan-loss experience and risk-taking behavior at large commercial banks

✍ Scribed by Joseph F. Sinkey; Mary Brady Greenawalt

• Book ID: 104632286
• Publisher: Springer
• Year: 1991
• Tongue: English
• Weight: 933 KB
• Volume: 5
• Category: Article
• ISSN: 0920-8550
• DOI: 10.1007/bf00127083

✦ Synopsis

Net loan chargeoffs and nonperforming loans reflect realized credit risks for banks. These risks arise from either external factors such as depressed economic conditions (e.g., the energy and farm belts of the United States in the 1980s) or internal factors such as poor lending decisions (including fraudulent ones) or both. For large commercial banks in 1987, we find that almost 94 percent of the variation in loss rates within regions was due to banks having different loss rates on the same types of loans. Our regression results indicate that loan-loss rates in 1987 were positively associated with loan rates, volatile funds, and loan volume from the preceding three years. In contrast, banks with "adequate capital" in the preceding three years tended to have lower loss rates.

We thank David Blackwell, Robert Brown, Robert Lamy, James Musumeci, Fred Richardson, James Yardley, and two journal referees for their comments and suggestions and Dotsie Walsh of the FDIC for supplying us with data missing from our Report of Condition and Report of Income and Dividend computer tapes.