Insolvency Frameworks and Private Debt
Author | : |
Publisher | : |
Total Pages | : |
Release | : 2018 |
ISBN-10 | : 9289932945 |
ISBN-13 | : 9789289932943 |
Rating | : 4/5 (45 Downloads) |
Book excerpt: 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 shows that OECD countries with better IFI deleverage faster and adjust their NPL levels more rapidly than countries with worse IFI. We also shows 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.