Getting better? The effect of the single supervisory mechanism on banks' loan loss reporting and loan loss reserves

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dc.contributor Bank of Finland Ristolainen, Kim 2018-05-23T11:29:10Z 2018-05-23T11:29:10Z 2018
dc.identifier.isbn 78-952-323-231-0
dc.identifier.issn 1456-6184
dc.description.abstract The recent financial crises have brought into focus questions regarding the quality of banks' assets. We study the patterns in banks reserving for and reporting of loan losses in the EU before and after implementation of the Single Supervisory Mechanism (SSM). We find that banks that 1) have less tier 1 capital, 2) are smaller, 3) are less liquid and 4) have smaller net interest margins either report relatively smaller loan loss reserves or less loan losses, even after including various controls. This supports the hypothesis that financially weaker banks may have a larger incentive to engage in balance sheet window dressing. We further find that the SSM has reduced but not eliminated the under-reserving and under-reporting bias. In addition, there has been a separate positive effect on the overall proportion of nonperforming loans (NPLs) that are realised as losses among the banks that have been under direct supervision by the SSM since implementation of the SSM.
dc.format.extent 54
dc.language.iso ENG
dc.relation.ispartofseries Bank of Finland Research Discussion Papers
dc.subject SSM
dc.subject EU-maat
dc.subject.other balance sheet cosmetics
dc.subject.other loan losses
dc.subject.other loan loss reserves
dc.subject.other SSM
dc.subject.other Euro area
dc.subject.other Difference-in-differences
dc.title Getting better? The effect of the single supervisory mechanism on banks' loan loss reporting and loan loss reserves
dc.type Paper
dc.identifier.urn URN:NBN:fi:bof-201805231572
dc.subject.jel G18
dc.subject.jel G21
dc.subject.jel G28 Bank of Finland Research Discussion Papers
dc.series.year 2018
dc.series.number 11/2018
dc.series.sortingnumber 0011 23.5.2018
dc.subject.yso euroalue
dc.subject.yso pankit
dc.subject.yso pääoma
dc.subject.yso luotot
dc.subject.yso luottotappiot
dc.subject.yso taseet
dc.subject.yso raportointi
dc.subject.yso informaatio
bof-internal.includedInCRIS 1
dc.type.okm D4

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