Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258834 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 15 [Issue:] 3 [Article No.:] 111 [Publisher:] MDPI [Place:] Basel [Year:] 2022 [Pages:] 1-30
Publisher: 
MDPI, Basel
Abstract: 
After the 2008 global financial crisis, U.S. bank holding companies needing to cover larger-than-expected loan losses raised concerns that existing provision accounting may be procyclical. Most related studies have found evidence of procyclicality using either aggregate time-series data or 'as-reported' panel data. We test the null hypothesis that provisions were a constant fraction of nonperforming loans across the economic cycle. We create a 'forced' panel, which incorporates the entities acquired by each holding company in the quarters prior to their mergers. As in the related literature, we fail to reject the null hypothesis with 'as-reported' data; however, we reject the null hypothesis with the 'forced' panel. This finding suggests that holding companies built up provisions to some degree during the pre-crisis period to cover larger future losses. These actions reduced capital and likely depressed lending in the pre-crisis period; such countercyclical impacts are consistent with post-crisis macroprudential policies.
Subjects: 
banks
accounting
provisions
loan losses
procyclical
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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