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Impact of Insolvency Regimes on NPLs: Two Birds in the Bush is Worth One in the Hand

Author

Listed:
  • Jean-Charles Bricongne
  • Mathilde Dufouleur

Abstract

This paper examines the impact of insolvency framework reforms on non-performing loans (NPLs), extending prior research by considering both creditor and debtor factors. Using a new metric derived from the European Banking Authority's Transparency Exercises, we focus on the insolvency regime of the debtor's country in cross-border insolvencies. Furthermore, we contribute to the creditor vs. debtor-friendly insolvency regime debate by analysing reforms according to their orientation. Our findings suggest that debtor-oriented reforms are more effective in reducing NPLs, particularly benefiting non-SMEs and large banks in high NPL contexts. Moreover, such reforms have a larger effect in non-debtor and creditor-friendly insolvency regime countries. Finally, we also find that creditor-oriented reforms are associated with higher NPL ratios.

Suggested Citation

  • Jean-Charles Bricongne & Mathilde Dufouleur, 2024. "Impact of Insolvency Regimes on NPLs: Two Birds in the Bush is Worth One in the Hand," Working papers 953, Banque de France.
    • Handle: RePEc:bfr:banfra:953
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    File URL: https://www.banque-france.fr/system/files/2024-07/WP953_0.pdf
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    More about this item

    Keywords

    Non-Performing Loans; Insolvency Regime; Transparency Exercise; Reform; Banking Sector;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • G3 - Financial Economics - - Corporate Finance and Governance
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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