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Insolvency frameworks and private debt: an empirical investigation

Author

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  • Consolo, Agostino
  • Malfa, Federica
  • Pierluigi, Beatrice

Abstract

This paper presents new evidence on the importance of insolvency frameworks for private sector debt deleveraging and for the resolution of non-performing loans (NPL). We construct an aggregate insolvency framework index (IFI), which is used as explanatory variable in the empirical analysis. By means of panel estimates over 2003-2016, we show that OECD countries with better IFI deleverage faster and adjust their NPL levels more rapidly than countries with worse IFI. We also show that there is a strong correlation between the level of NPL and IFI, which appears to be state-dependent, i.e. in a situation of high unemployment relative to its historical average the NPL ratio is generally lower for a higher IFI. Finally, our results indicate that better insolvency frameworks lead to faster NPL reductions and to lower NPL increases during economic bad times. JEL Classification: C23, E02, E05, O52

Suggested Citation

  • Consolo, Agostino & Malfa, Federica & Pierluigi, Beatrice, 2018. "Insolvency frameworks and private debt: an empirical investigation," Working Paper Series 2189, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20182189
    Note: 3572376
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    References listed on IDEAS

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    Cited by:

    1. Pierluigi, Beatrice & Sondermann, David, 2018. "Macroeconomic imbalances in the euro area: where do we stand?," Occasional Paper Series 211, European Central Bank.
    2. Albulena Shala & Valentin Toçi & Arben Mustafa, 2022. "Macroeconomic, Structural, and Bank-specific Determinants of Non-performing Loans in Central and Eastern Europe," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(5), pages 411-429, May.
    3. John Thornton & Caterina Di Tommaso, 2021. "The effect of non‐performing loans on credit expansion: Do capital and profitability matter? Evidence from European banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4822-4839, July.
    4. Bańkowski, Krzysztof & Bouabdallah, Othman & Domingues Semeano, João & Dorrucci, Ettore & Freier, Maximilian & Jacquinot, Pascal & Modery, Wolfgang & Rodríguez-Vives, Marta & Valenta, Vilém & Zorell, , 2022. "The economic impact of Next Generation EU: a euro area perspective," Occasional Paper Series 291, European Central Bank.

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    More about this item

    Keywords

    insolvency frameworks; non-performing loans; panel estimates; private debt;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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