Using Loan Loss Indicators by Loan Type to Sharpen the Evaluation of Banks' Loan Loss Accruals

2021 ◽  
Author(s):  
Gauri Bhat ◽  
Joshua Lee ◽  
Stephen G. Ryan
Keyword(s):  
Regulatory Capital ◽  
Loan Loss ◽  
Loan Portfolio ◽  
Net Charge ◽  
Economic Implications ◽  
Portfolio Composition ◽  
Loan Portfolios ◽  
Commercial Loans ◽  
Machine Readable ◽  
Loan Losses

Prior research acknowledges that the determinants, timeliness, and economic implications of banks' provisions for loan losses (PLL) vary across loan types. However, the lack of machine-readable data on PLL by loan type has precluded researchers from incorporating loan type into the evaluation of PLL beyond either controlling for or partitioning the sample on crude proxies for loan portfolio composition. We calculate PLL by loan type as the change in the allowance for loan losses by loan type, which we hand collect from Form 10-K filings, plus net charge-offs by loan type, which we obtain from regulatory filings. Using these data, we show that prior findings that banks exercise discretion over PLL to smooth earnings and increase regulatory capital are driven by commercial loans, a thin slice of banks' loan portfolios, and that commonly used measures of PLL timeliness vary substantially across loan types.

scholarly journals Market Orchestrators: The Effects of Certification on Platforms and Their Complementors

2021 ◽  
Author(s):  
Joost Rietveld ◽  
Robert Seamans ◽  
Katia Meggiorin
Keyword(s):  
Social Performance ◽  
Supply Side ◽  
Microfinance Institutions ◽  
Loan Portfolio ◽  
Demand And Supply ◽  
Portfolio Composition ◽  
Loan Portfolios ◽  
Governance Strategies ◽  
And Performance ◽  
Supply Side Factors

We study how a multisided platform’s decision to certify a subset of its complementors affects those complementors and ultimately the platform itself. Kiva, a microfinance platform, introduced a social performance badging program in December 2011. The badging program appears to have been beneficial to Kiva—it led to more borrowers, lenders, total funding, and amount of funding per lender. To better understand the mechanisms behind this performance increase, we study how the badging program changed the bundle of products offered by Kiva’s complementors. We find that Kiva’s certification leads badged microfinance institutions to reorient their loan portfolio composition to align with the certification and that the extent of portfolio reorientation varies across microfinance institutions, depending on underlying demand- and supply-side factors. We further show that certified microfinance institutions that do align their loan portfolios enjoy stronger demand-side benefits than do certified microfinance institutions that do not align their loan portfolios. We therefore demonstrate that platforms can influence the product offerings and performance of their complementors—and, subsequently, the performance of the ecosystem overall—through careful enactment of governance strategies, a process we call “market orchestration.”

Benchmarking and crosschecking international banking economic and regulatory capital

2005 ◽  
Vol 13 (1) ◽  
pp. 65-79 ◽  
Author(s):  
John L. Simpson ◽  
John Evans
Keyword(s):  
Banking System ◽  
Performance Model ◽  
Capital Adequacy ◽  
Future Research ◽  
Informational Efficiency ◽  
International Banking ◽  
Regulatory Capital ◽  
Loan Loss ◽  
Banking Systems ◽  
Loan Loss Provisions

The purpose of this paper is to provide banking regulators with another tool to crosscheck the appropriateness and consistency of levels of capital adequacy for banks. The process begins by examining banking systems and focuses on market risks and the systemic risks associated with growing global economic integration and associated systemic interdependence. The model provides benchmarks for economic and regulatory capital for international banking systems using country, regional and global stock‐market generated price index returns data. The benchmarks can then be translated to crosschecking capital levels for banks within those systems. For analytical purposes systems are assumed to possess a degree of informational efficiency and credit, liquidity and operational risks are held constant or at least assumed to be covered in loan loss provisions. An empirical study is included that demonstrates how market risk and systemic risk can be accounted for in a benchmark banking system performance model. Full testing of the model is left for future research. The paper merely proposes that such an approach is feasible and useful and it is in no way intended to be a replacement for the current Basel Accord.

Borrowers' Accounting Information and the Quality of Banks' Loan Portfolios

2020 ◽  
Author(s):  
Carlo Maria Gallimberti
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Public Funding ◽  
Section 404 ◽  
Loan Portfolio ◽  
Loan Contracts ◽  
Loan Portfolios ◽  
Sarbanes Oxley ◽  
Positive Effect

I examine the relation between borrowers' financial reporting (FR) and the quality of banks' loan portfolios. This relation is theoretically ambiguous as better FR improves banks' monitoring of loans but also grants more creditworthy borrowers cheaper access to alternative public funding, increasing competition and creating adverse selection problems for banks. Using the adoption of Section 404 of the Sarbanes-Oxley Act to identify improvements in borrowers' FR, I find an overall positive effect of FR on banks' lending: the quality of loans extended to borrowers subject to Section 404 improves relative to the quality of loans extended by the same bank to other borrowers exempted from Section 404. Additional tests examining borrowers' internal control over FR and loan contracts' characteristics confirm that improved monitoring and screening are both responsible for the higher loan portfolio quality. Overall, my study highlights unexplored consequences of companies' FR on the quality of banks' assets.

Regulatory capital decisions in the Context of consumer loan portfolios

2017 ◽  
Vol 68 (7) ◽  
pp. 847-858
Author(s):  
Kanshukan Rajaratnam ◽  
Peter Beling ◽  
George Overstreet
Keyword(s):  
Regulatory Capital ◽  
Loan Portfolios

scholarly journals The Profitability of Agricultural Loans by Commercial Banks

1978 ◽  
Vol 7 (1) ◽  
pp. 1-5 ◽  
Author(s):  
Eddy L. LaDue ◽  
Jerry L. Moss ◽  
Robert S. Smith
Keyword(s):  
New York ◽  
Commercial Banks ◽  
High Rate ◽  
Loan Loss ◽  
Mortgage Loans ◽  
Loan Repayment ◽  
Demand Deposits ◽  
Commercial Loans ◽  
On Farm ◽  
Outstanding Loan

Data collected from a sample of New York banks were used to assess factors expected to influence the profitability of the various loan programs of commercial banks. Loan loss and loan service costs were lower for farm loans than for either installment or commercial loans. Although not required to maintain compensating balances, farmer time and demand deposits represented 23 percent of outstanding loan balances. The high rate of turnover on farm mortgage loans resulted in an average loan repayment period of 6.2 years, only 40 percent of the original financing period. Lower farm loan costs indicate that banks could charge 3/4 percent lower interest on farm loans than commercial loans.

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