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Operational loss recoveries and the macroeconomic environment: Evidence from the U.S. banking sector

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  • Frame, W. Scott
  • Lazaryan, Nika
  • McLemore, Ping
  • Mihov, Atanas

Abstract

Using supervisory data from large U.S. bank holding companies (BHCs), we document that operational loss recovery rates decrease in macroeconomic downturns. This procyclical relationship varies by business lines and loss event types and is robust to alternative data aggregations, macroeconomic measurement horizons, subperiod partitions and estimation methodologies. Further analysis shows that resource constraints faced by BHC risk management functions is a plausible explanation for these patterns. Our findings offer new evidence on how economic shocks transmit to banking industry losses with implications for risk management and supervision.

Suggested Citation

  • Frame, W. Scott & Lazaryan, Nika & McLemore, Ping & Mihov, Atanas, 2024. "Operational loss recoveries and the macroeconomic environment: Evidence from the U.S. banking sector," Journal of Banking & Finance, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:jbfina:v:165:y:2024:i:c:s0378426624001377
    DOI: 10.1016/j.jbankfin.2024.107220
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    Keywords

    Operational losses; Loss recoveries; Macroeconomic environment; Banking sector;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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