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Dynamic Depositor Discipline in U.S. Banks


Table 7.
Total Nonperforming Assets Prediction (one year ahead)
Ordinary Least Squares Regression
FDIC Survey Data 1998-2001
  Specification 1 Specification 2 Specification 3 Specification 4
Explanatory Variable Coefficient Estimate (standard error) Coefficient Estimate (standard error) Coefficient Estimate (standard error) Coefficient Estimate (standard error)
Intercept 0.6817 *** (0.2174) 0.8790 *** (0.2340) 1.0790 *** (0.2415) 1.1988 *** (0.2266)
Nonperforming assets (t-1)  0.7318 *** (0.0118) 0.6979 *** (0.0124) 0.6748 *** (0.0130) 0.68178 *** (0.0129)
Equity (t-1)  0.0057 * (0.0034) 0.0061 * (0.0034) 0.0080 ** (0.0034) 0.0086 ** (0.0034)
Allowance for loan losses (t-1)  0.0000 ** 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 * 0.0000
Volatile liabilities (t-1)  0.0067 *** (0.0017) 0.0068 *** (0.0017) 0.0072 *** (0.0017) 0.0068 *** (0.0017)
Liquid assets (t-1)  -0.0085 *** (0.0019) -0.0087 *** (0.0019) -0.0085 *** (0.0019) -0.0080 *** (0.0019)
Loans and securities with maturities of 5 years or more (t-1)  0.0009 (0.0021) 0.0004 (0.0020) 0.0002 (0.0020) 0.0005 (0.0020)
Gross charge-offs on loans & leases (t-1)  0.1432 ** (0.0582) 0.1466 ** (0.0579) 0.1407 ** (0.0577) 0.1342 ** (0.0576)
Provisions for loan & lease losses (t-1)  -0.2156 *** (0.0590) -0.2419 *** (0.0588) -0.2422 *** (0.0585) -0.2329 *** (0.0585)
Income before taxes and extraordinary items (t-1)  -0.0086 (0.0166) -0.0071 (0.0166) 0.0063 (0.0167) 0.0157 (0.0166)
State personal-income growth, lag 1 -0.0748 *** (0.0109) -0.0689 *** (0.0108) -0.0698 *** (0.0108) -0.0766 *** (0.0107)
State personal-income growth, lag 2 -0.0181 * (0.0106) -0.0230 ** (0.0105) -0.0248 ** (0.0105) -0.0212 ** (0.0105)
State personal-income growth, lag 3 0.0249 * (0.0130) 0.01952 (0.0129) 0.0178 (0.0129) 0.02341 * (0.0128)
State personal-income growth, lag 4 0.0197 * (0.0119) 0.0215 * (0.0118) 0.0210 * (0.0118) 0.0207 * (0.0118)
State personal-income growth, lag 5 0.0374 ** (0.0133) 0.0338 ** (0.0132) 0.0327 ** (0.0132) 0.0350 *** (0.0132)
Asset component dummy 1         -0.4322 *** (0.0916) -0.5727 *** (0.0767)
Asset component dummy 2         -0.2150 *** (0.0828) -0.3020 *** (0.0744)
Survey lag (calldate - survey date)     0.0005 *** (0.0002) 0.0006 *** (0.0002)    
Concentrations of credit dummy 1     -0.0340 (0.0476) -0.0158 (0.0475)    
Concentrations of credit dummy 3     -0.0026 (0.0741) 0.0043 (0.0738)    
Fail-to-adjust pricing dummy 1     0.0990 (0.0602) 0.1056 * (0.0600)    
Fail-to-adjust pricing dummy 3     -0.0611 (0.1278) -0.0513 (0.1273)    
Principal reduction dummy 1     -0.1373 *** (0.0448) -0.1118 ** (0.0448)    
Principal reduction dummy 3     -0.0158 (0.1153) -0.0347 (0.1151)    
Written policies versus practices dummy 1     -0.1094 ** (0.0477) -0.0856 * (0.0477)    
Written policies versus practices dummy 3     -0.0179 (0.1155) -0.0251 (0.1151)    
Current underwriting practices dummy 1     0.0515 (0.0544) 0.0549 (0.0543)    
Current underwriting practices dummy 3     0.1319 (0.1547) 0.1048 (0.1542)    
Portfolio credit risk dummy 1     -0.0402 (0.0494) 0.0407 (0.0512)    
Portfolio credit risk dummy 3     0.2625 * (0.1407) 0.1888 (0.1437)    
Loan administration dummy 1     -0.1969 *** (0.0471) -0.1633 *** (0.0474)    
Loan administration dummy 3     0.0301 (0.1142) 0.0054 (0.1143)    
Adjusted R Squared 56.4%   57.3%   57.6%   57.3%  
F Statistic for test that all variables are significant, 5 percent critical value 346.31
1.67
  174.06
1.46
  165.25
1.46
  314.71
1.67
 
Specifications compared for F-statistic test that all survey terms are not significant, 5 percent critical value   Spec(1) and (2)
6.34, 1.67
        Spec(3) and (4)
3.06, 1.67
 
* indicates significance at 10% level, ** indicates signifcance at 5% level and *** indicates significance at 1% level

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