SAFE Research Seminar: Luigi Zingales
Speaker: Luigi Zingales, Chicago Booth School of Business
Title: The Origins of Italian NPLs
What caused Italian banks’ gross nonperforming loans (NPLs) to balloon to €360bn at the end of 2015? By using a detailed bank-firm dataset we try to identify what fraction of NPLs was “unavoidable”, due to the economic recession, and which one was caused by poor ex-ante lending decisions by banks. The analysis using aggregated data suggests that macroeconomic conditions explain almost 90% of the NPLs flows observed in the period 2008-16. A micro analysis focusing on the non-financial corporate sector (where most of NPLs originated) relying on a simple counterfactual exercise suggests that at least 50% of defaults were “unavoidable”. A combination between a weak corporate sector at the onset of the recession and a weak ability of banks to select borrowers played a role in the rest. Actual or potential criminal behavior by bank managers seems to account for 4% to 8% of total defaults observed among non-financial corporations.