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Determinants of the loan loss allowance: some cross-country comparisons

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Author Info
Iftekhar Hasan (Rensselaer Polytechnic Institute & Bank of Finland)
Larry D. Wall (Federal Reserve Bank of Atlanta)

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Abstract

This paper analyses the determinants of banks’ loan loss allowances for samples of US banks and three non-US samples: a group of 21 countries, Canada and Japan. The model includes fundamental (or non-discretionary) determinants of the allowance such as non-performing loans, and discretionary determinants such as income before the loan loss provision. The results suggest that the loan loss allowance is sensitive to pre-provision income in almost all samples. However, the results also suggest that some variables thought to reflect fundamental factors in US analysis, such as net chargeoffs, are not significant factors for non-US banks.

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Publisher Info
Paper provided by EconWPA in its series Finance with number 0404018.

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Date of creation: 27 Apr 2004
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Handle: RePEc:wpa:wuwpfi:0404018

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Web page: http://129.3.20.41

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Related research
Keywords: loan loss allowance; accounting standards; international banking; nonperforming loan; discretionary accruals;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Shrieves, Ronald E. & Dahl, Drew, 2003. "Discretionary accounting and the behavior of Japanese banks under financial duress," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1219-1243, July. [Downloadable!] (restricted)
  2. Beaver, William H. & Engel, Ellen E., 1996. "Discretionary behavior with respect to allowances for loan losses and the behavior of security prices," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 177-206, October. [Downloadable!] (restricted)
  3. Moyer, Susan E., 1990. "Capital adequacy ratio regulations and accounting choices in commercial banks," Journal of Accounting and Economics, Elsevier, vol. 13(2), pages 123-154, July. [Downloadable!] (restricted)
  4. Bhat, Vasanthakumar N, 1996. "Banks and Income Smoothing: An Empirical Analysis," Applied Financial Economics, Taylor and Francis Journals, vol. 6(6), pages 505-10, December. [Downloadable!] (restricted)
  5. Takeo Hoshi & Anil Kashyap, 1999. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Working Papers 7250, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Larry D. Wall & Timothy W. Koch, 2000. "Bank loan-loss accounting: a review of theoretical and empirical evidence," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-20. [Downloadable!]
  7. Hesna Genay, 1998. "Assessing the condition of Japanese banks: how informative are accounting earnings?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 12-34. [Downloadable!]
  8. Wetmore, Jill L. & Brick, John R., 1994. "Loan-loss provisions of commercial banks and adequate disclosure: A note," Journal of Economics and Business, Elsevier, vol. 46(4), pages 299-305, October. [Downloadable!] (restricted)
  9. Kane, Edward J., 2000. "The dialectical role of information and disinformation in regulation-induced banking crises," Pacific-Basin Finance Journal, Elsevier, vol. 8(3-4), pages 285-308, July. [Downloadable!] (restricted)
  10. Scholes, Myron S & Wilson, G Peter & Wolfson, Mark A, 1990. "Tax Planning, Regulatory Capital Planning, and Financial Reporting Strategy for Commercial Banks," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(4), pages 625-50. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Trevor Fitzpatrick & Kieran McQuinn, 2005. "Labour Cost Efficiency in UK and Irish Credit Institutions," The Economic and Social Review, Economic and Social Studies, vol. 36(1), pages 45–66. [Downloadable!]
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