Research articles for the 2020-05-02

How Do Banks Respond to Non-Performing Loans?
Bruno, Brunella,Marino, Immacolata
We exploit the first ECB Asset Quality Review (AQR) as a quasi-experiment to investigate the effect of changes in non-performing loans (NPLs) on banks' balance sheets. We show that AQR banks with higher unexpected changes to their NPLs deleverage and reduce lending more than non-AQR banks. The effect is non-linear, and stronger in AQR banks located in high-NPL countries. If we focus only on AQR banks, we find that larger NPL adjustments have negative compositional effects on lending in the sample of reviewed banks from low-NPL countries, and negative size effects in the sample from high-NPL countries.