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| Author: | Berger, Allen N. DeYoung, Robert |
| Title: | Problem loans and cost efficiency in commercial banks |
| Journal: | Journal of Banking and Finance
1997 : JUN, VOL. 21:6, p. 849-870 |
| Index terms: | COMMERCIAL BANKS COST EFFECTIVENESS LOANS |
| Language: | eng |
| Abstract: | The intersection between the problem loan literature and the bank efficiency literature is examined in the article. Four hypotheses regarding the relationships among loan quality, cost efficiency, and bank capital are tested by using Granger-causality techniques. Increases in nonperforming loans tend to be followed by decreases in measured cost effectiveness while reductions in capital at thinly capitalized banks precede increases in problem loans. This provides evidence for the suggestion that cost efficiency may be an important indicator of future problem loans and problem banks. |
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