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This study examines the impact of making too much provision to write off bad loans by analyzing the consequences on tax and owners' equity. This study also examines that making too much provision has no relation to recovery of bad loans and so questions the rationality of making provision from current profit to write off loans in future. Provision can be kept on the current asset portion, that is, on interest receivable, and bad loans can be written off instantly from equity since it is a capital loss. Since making provision has no impact on collection of bad loans so as to improve the loan loss situation, loans becoming bad should be minimized at the least possible level, which will result in lower loan loss provision, which, in turn will increase the amount of tax payable as well as increase shareholders' wealth.

This paper explores the effect of natural disasters on the profitability and solvency of US banks.

Employing a sample of 187 large-scale natural disasters that occurred in the United States between 2000 and 2014 and a sample of 2,891 banks, we examine whether and how disaster-related damages affect various measures of bank profitability and bank solvency. We differentiate between different types of banks (with local, regional and national operations) based on a breakdown of their state-level deposits and explore the reaction of these banks to damages weighted by the GDP of the states they operate in.

We find that natural disasters have a pronounced effect on the net-income-to-assets and the net-income-to-equity ratio of banks, as well as the banks' impaired loans and return on average assets. We also observe significant effects on the equity ratio and the tier-1 capital ratio (two solvency measures). Interestingly, the latter are positive for regional banks which appear to benefit from increased customer deposits related to safekeeping, government payments for post-disaster recovery, insurance payouts and decreased withdrawals, while they are significantly negative for banks that operate locally or nationally.

We contribute to the literature by offering various new insights regarding the effects natural disasters have on financial institutions. With climate change-driven natural disasters widely expected to increase both in terms of frequency and severity, their economic fallout is likely to impose an increasing burden on financial institutions. Large, nationally operating banks tend to be well diversified both geographically and in terms of their product offerings. Small, locally operating banks, however, are increasingly at risk – particularly if they operate in disaster-prone areas. Current banking regulations generally do not factor natural disaster risks into their capital requirements. To avoid the next big financial crisis, regulators may want to adjust their reserve requirements by taking this growing risk exposure into consideration.

This study examines the stock market reactions to an involuntary adjustment to loan‐loss reserves by the write‐downs of Argentinean loans by major banks with Argentinean loan exposure. This event has escaped investigation in the empirical literature of the LDC debt crisis. A seemingly unrelated regression study, rather than a Brown and Warner (1980) event study, is employed to investigate two pairs of hypotheses, namely the new‐information vs. information‐leakage hypothesis and the rational‐pricing vs. investor‐contagion hypothesis, using daily stock market data. Sample banks are grouped into three portfolios (highly exposed multinational banks, mildly exposed regional wholesale banks and unexposed or nominally exposed regional consumer banks) to test the investor‐contagion effect. The results indicate that the stock market adjusts quickly to new information, thereby providing evidence of semi‐strong‐form market efficiency. Unlike previous research, this research finds strong evidence for an investor‐contagion effect.

The purpose of this paper is to investigate the effects of macroeconomic factors on secured and unsecured household loans from UK banks.

The approach uses Vector auto‐regression models to test the relationship between macroeconomic factors such as interest rates, house prices, unemployment rates, disposable income and bank write‐offs to discern the main factors which could impact on banks' losses.

This paper identifies several macroeconomic factors that influence loan losses. The influence however depends on the type of arrears. Changes in house prices, interest rates and unemployment rates have a significant impact on secured loans. There is however, minimal impact on unsecured loans. Unemployment stands out as the major factor that influences both mortgage and credit card arrears. The estimated results show that the main factors impacting on credit cards are disposable income and unemployment rates, while changes in interest rates have no impact on credit card write‐offs.

This paper's value lies in providing methods by which commercial banks could manage household loans better by reducing the effects of macroeconomic factors.

This study aims to investigate the dynamic relationships between profitability, credit risk, liquidity risk and capital in Indonesian banking industry.

The authors use a panel vector autoregression model that incorporates macroeconomic variables: growth, interest rate, foreign exchange. The analysis is based on a monthly panel data set of 88 banks spanning from January 2012 to September 2021, which comprises 10,296 bank-month observations.

Our key findings highlight (i) permanent credit cost and liquidity cost pass through practices, (ii) complementary function of liquidity and capital, (iii) earning management motivated asset write off and (iv) credit risk-liquidity risk neutrality. In addition, the authors observe that the banks demonstrated resilience to macroeconomic shocks.

Our study have shown some interesting dynamic patterns of fundamentals; nevertheless, unified theoretical underpinning of the process is still unavailable. This should be an important future reasearch avenue.

The study brings significant implications for regulatory and supervisory practices aimed at enhancing the financial stability of banks.

We conduct estimation of Indonesian banks system in dynamic perspective and perform impulses responses.

The unfolding of the financial crisis in parts of Europe has highlighted a number of challenges which can be analysed through the prism of NPLs. These included the discrepancies across supervisory regimes, the limitations of macro-prudential supervision and the diversity of NPL resolution approaches.

The authors review policy lessons from the crisis in dealing with the NPL problem.

The paper highlights some key recommendations – the need for intrusive supervision, strong macro-financial surveillance and NPL resolution approaches that provide the right incentives.

These recommendations can help inform the current debate regarding regulatory and structural initiatives to tackle NPLs.

The purpose of this paper is to show that subordinated debt regulatory proposals assume that transactions in the secondary market of subordinated debt can attenuate moral hazard on the part of management if secondary market prices are informative signals of the risk of the institution. Owing to the proprietary nature of dealer prices and the liquidity of secondary transactions, the practical value of information provided by subordinated debt issues in isolation is questionable.

A multivariate dynamic risk signal is proposed that combines fluctuations in equity prices, subordinated debt and senior debt yields. The signal is constructed as a coincident indicator that is based in a time series model of yield fluctuations and equity returns. The extracted signal monitors idiosyncratic risk of the intermediary because yields and equity returns are filtered from market conditions. It is also predictable because it is possible to construct a leading indicator based almost entirely on spreads to Treasury.

The signal for the Bank of America and Banker's Trust is implemented. For Bank of America, the signal points mainly to two events of uprising risk: January 2000 when the bank disclosed large losses in its bond and interest‐rate swaps portfolios; and November 2000 when it wrote off $1.1 billion for bad loans. For Banker's Trust, the signal points to October/November 1995 after the filing of federal racketeering charges against Banker's Trust; and October 1998 when the bank suffered substantial losses from its investments in emerging markets.

The signal is a complementary instrument for regulators and investors to monitor and assess in real time the risk profile of the financial institution.