Loan Evergreening through Banks' Lenses: Evidence from Credit Product-Level Data

Wed, 01 Jan 2025 00:00:00 +0000

Research question and motivation. Banks reluctant to recognize losses on troubled borrowers engage in “loan evergreening”—rolling over or extending credit to delay loss recognition. This misdirected lending has been blamed for Japan’s Lost Decade and Europe’s post-crisis stagnation by steering credit to unproductive firms. Observing how banks do this, and their regulatory motives, is empirically hard. The paper studies a specific, previously hard-to-observe evergreening strategy that arises from banks’ incentive to avoid loan-loss provisions, which increase convexly as repayment delays lengthen.

Cecilia Dassatti | Macro Paper Warehouse

Loan Evergreening through Banks' Lenses: Evidence from Credit Product-Level Data