Are Incurred Loss Standards Countercyclical? A Case Study Using U.S. Bank Holding Company Data

After the 2008 global financial crisis, U.S. bank holding companies needing to cover larger-than-expected loan losses raised concerns that existing provision accounting may be procyclical. Most related studies have found evidence of procyclicality using either aggregate time-series data or “as-reported” panel data. We test null hypothesis provisions were a constant fraction nonperforming loans across economic cycle. create “forced” panel, which incorporates entities acquired by each company in quarters prior their mergers. As literature, we fail reject with data; however, panel. This finding suggests built up some degree during pre-crisis period larger future losses. These actions reduced capital and likely depressed lending period; such countercyclical impacts are consistent post-crisis macroprudential policies.