To what extent the global financial crisis deteriorated loan quality of US commercial banks?

Abstract

This paper aims to study the extent to which the global financial crisis worsened the loan quality of US commercial banks. That is, we specify the factors behind non-performing loans with a focus on the effect of the crisis as an additional determinant. Thus, we use dynamic panel GMM estimation on three size groups of 184 US commercial banks over 2000–2013 period. Our findings show that bad loans in the three sub-samples are differently affected by the bank-specific and macroeconomic variables. Moreover, our results indicate that the crisis factor has a positive and statistically significant effect on non-performing loans of US banks with small ones being mostly influenced. This finding can be clarified by the policies of financial intervention that favoured larger banks so as to save the US financial system. Also, the diversification of large banks enables them to overcome the contagious crisis effect.