Featured Product

    BIS Publishes Paper on Bad Bank Resolutions and Bank Lending

    January 24, 2020

    BIS published a working paper that examines whether bad banks, or impaired asset segregation tools, and recapitalization lead to a recovery in the lending of originating banks and a reduction in the non-performing loans (NPLs). A key finding of the study is that only when the two tools are used together do they have the desired effect and a sizable impact on the two response variables: neither tool is effective separately. In countries where the legal system is more efficient, credit recovery and NPLs reductions are stronger in response to impaired asset segregations.

    The paper first discusses the mechanisms and different dimensions of asset segregation. Then, it lays out the testable hypotheses, before describing the data and conducting the empirical analysis and moving on to presenting the conclusions of the study. The study is based on a novel data set covering 135 banks from 15 European banking systems during 2000–2016. The main finding is that bad bank segregations are effective in cleaning up balance sheets and promoting bank lending only if they combine recapitalization with asset segregation. The results continued to hold when study addressed the potential endogeneity problem associated with the creation of a bad bank. Used in isolation, neither tool will suffice to spur lending and reduce future NPLs. Exploiting the heterogeneity in the asset segregation events, the study was able to show which features of resolution schemes have a stronger impact on the response variables and found that asset segregation is more effective when:

    • Asset purchases are funded privately
    • Smaller shares of the originating bank's assets are segregated
    • Asset segregation occurs in countries with more efficient legal systems

     

    Related Links

    Keywords: International, Banking, NPLs, Credit Risk, Resolution, Impaired Asset Segregation Tools, Research, BIS

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    HKMA Announces Launch of Data Repository on Sustainable Finance

    The Hong Kong Monetary Authority (HKMA) announced that the Green and Sustainable Finance (GSF) Cross-Agency Steering Group has launched the information and data repositories and outlined the progress made in advancing the development of green and sustainable finance in Hong Kong.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    NGFS Report on Integration of G-Cubed Model into NGFS Scenarios

    The Network for Greening the Financial System (NGFS) published a report that explores the feasibility of integrating the G-Cubed general equilibrium model into the NGFS suite of models.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8301