Events at CERGE-EI
Monday, 13 November, 2023 | 14:00 | Room 402 | Applied Micro Research Seminar
Roman Goncharenko (Katholieke Universiteit Leuven) "How Much Do Banks Hide?"
Katholieke Universiteit Leuven, Belgium
Join online: https://call.lifesizecloud.com/19794025 (Passcode: 6791)
Abstract: In this paper, we quantify the extent of the hidden (undisclosed) loan loss problem among banks. We develop a dynamic model of a bank operating in the regulatory environment characterized by the minimum capital requirement and (stochastic) regulatory audit. The bank has control over lending, distributions, and loss disclosure decisions. Calibrating the model based on the outcomes of the ECB's in-depth Asset Quality Review conducted in 2014, we show that, on average, about 0.5% of banks' total loans constitute hidden defaulted loans. Undisclosed loan losses are highly countercyclical: in a contraction, on average, 1.2% of banks' total loans are hidden defaulted loans. We further use our model as a laboratory to assess various policies that could help solving the hidden loss problem.
