Public policy and financial stability: The impact of PCA and TARP on U.S. bank non-performing loans

Article


Jiang, C., Kanas, A. and Molyneux, P. 2018. Public policy and financial stability: The impact of PCA and TARP on U.S. bank non-performing loans. International Journal of Finance & Economics. 23 (4), pp. 376-392. https://doi.org/10.1002/ijfe.1622
TypeArticle
TitlePublic policy and financial stability: The impact of PCA and TARP on U.S. bank non-performing loans
AuthorsJiang, C., Kanas, A. and Molyneux, P.
Abstract

This study explores the implications of Prompt Corrective Action (PCA) and the Troubled Asset Relief Program (TARP) on the behavior of non-performing loans (NPLs) and real estate non-performing loans (RELs) in the U.S. over 1984-2015 using a Markov switching framework. We find that NPLs and RELs exhibit pronounced episodic behavior switching between non-stationary and stationary regimes. PCA and TARP have a significant impact on banking sector stability by influencing the probability of switching from non-stationary regimes to stationary regimes and by reducing the level of NPLs and RELs. These results are robust to various model specifications and have important implications for bank regulation as well as for the formulation of macro stress-testing.

PublisherWiley
JournalInternational Journal of Finance & Economics
ISSN1076-9307
Electronic1099-1158
Publication dates
Online14 Mar 2018
Print11 Oct 2018
Publication process dates
Deposited12 Feb 2018
Accepted31 Jan 2018
Output statusPublished
Accepted author manuscript
Copyright Statement

This is the peer reviewed version of the following article:Jiang C, Kanas A, Molyneux P. Public policy and financial stability: The impact of PCA and TARP on U.S. bank non‐performing loans. Int J Fin Econ. 2018;1–17. https://doi.org/10.1002/ijfe.1622, which has been published in final form at https://doi.org/10.1002/ijfe.1622. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Digital Object Identifier (DOI)https://doi.org/10.1002/ijfe.1622
LanguageEnglish
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