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Evergreening in the Euro Area: Evidence from Survey Data and a Conceptual Framework

Author

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  • Sven Steinkamp
  • Aaron Tornell
  • Frank Westermann

Abstract

Since the beginning of the financial crisis in 2007/2008, new lending in the euro area has slowed sharply and the old loans experienced ‘evergreening’, that is, bad loans have been rolled over rather than being liquidated. Even though ameliorating evergreening is key to promote lending for new investment projects and growth, no systematic evergreening measures exist. In this paper, we propose a new cross-country evergreening index and develop a public-choice model to explain why evergreening may reflect the incentives of regulators to forebear. Our evergreening index is based on a survey we designed and was administered by the ifo Institute to about 1000 experts in over 80 countries. We bring the model to the data using a heteroscedastic probit model and find that evergreening is higher in: (i) euro-area countries than in the rest of the world; (ii) in countries facing bank distress; and (iii) is highest in countries which experience banking distress and are members of the euro area. These results are consistent with our theoretical model. (JEL codes: F33, F55 and E58)

Suggested Citation

  • Sven Steinkamp & Aaron Tornell & Frank Westermann, 2021. "Evergreening in the Euro Area: Evidence from Survey Data and a Conceptual Framework," CESifo Economic Studies, CESifo Group, vol. 67(1), pages 1-34.
    • Handle: RePEc:oup:cesifo:v:67:y:2021:i:1:p:1-34.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifaa017
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    Citations

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    Cited by:

    1. Aizenman, Joshua & Jinjarak, Yothin & Spiegel, Mark M., 2023. "Fiscal capacity and commercial bank lending under COVID-19," Journal of the Japanese and International Economies, Elsevier, vol. 68(C).
    2. Diana Bonfim & Geraldo Cerqueiro & Hans Degryse & Steven Ongena, 2023. "On-Site Inspecting Zombie Lending," Management Science, INFORMS, vol. 69(5), pages 2547-2567, May.
    3. Joshua Aizenman & Yothin Jinjarak & Mark M. Spiegel, 2022. "Fiscal Stimulus and Commercial Bank Lending Under COVID-19," Working Paper Series 2022-04, Federal Reserve Bank of San Francisco.
    4. Miguel Acosta-Henao & Sangeeta Pratap & Manuel Taboada, 2023. "Relationship Lending: Characteristics and Real Effects," Working Papers Central Bank of Chile 999, Central Bank of Chile.

    More about this item

    Keywords

    evergreening; central bank credit; regulatory forbearance; survey data;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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