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.

Tell Me Something I Don't Already Know: Learning in Low- and High-Inflation Settings

This paper uses randomized control trials (RCTs) applied over time in multiple countries to study whether the economic environment — specifically the level of inflation — affects how agents learn from new information. The main finding is that as inflation rose in advanced economies, both households and firms became more attentive to and informed about publicly available news about inflation, causing them to respond less to exogenously provided information about inflation and monetary policy in the RCT treatments. When agents are already well-informed about the current inflation environment (because high inflation makes it salient), additional information provision moves their beliefs less — the marginal value of information is decreasing in prior attentiveness. Complementary evidence from Uruguay (persistently high inflation) and New Zealand (persistently low inflation) confirms the cross-sectional pattern: agents in high-inflation environments have stronger priors and respond less to information treatments. The results imply that central bank communication interventions are more effective during low-inflation periods when agents are less informed.

Rodrigo Lluberas | Macro Paper Warehouse

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

Tell Me Something I Don't Already Know: Learning in Low- and High-Inflation Settings