Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212281 
Year of Publication: 
2014
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 6/2014
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We model banks' loan losses with a panel of European countries for the period 1982-2012 using three country-specific macro variables: output growth shocks, real interest rates, and a measure of excessive private sector indebtedness. We find that a drop in output has an intensified impact on rising loan losses if the economy is excessively indebted. This may explain differences in loan losses in different recessions across time and across countries. For instance, the dramatic output drop in Finland in 2009 did not cause large loan losses compared with the Finnish crisis of the early 1990s because of the more moderate level of indebtedness. Low interest rates during the recent recession may have been another, perhaps the most important, factor mitigating loan losses.
Subjects: 
loan losses
banking crises
indebtedness
JEL: 
E44
G28
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-70-7
Document Type: 
Working Paper

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