Bank Loan Losses-Given-Default, Empirical Evidence

Abstract

The empirical literature has relied mostly on the corporate bond market to estimate losses in the event of default. The reason is that, bank loans being private instruments, few data on loan losses are publicly available. The contribution of this paper is to provide empirical evidence on losses on bad and doubtful bank loans. It is based on a unique set of micro data on loans to small and medium size firms over the period 1995-2000. The empirical results relate to the timing of recoveries on bad and doubtful bank loans, the distribution of cumulative recovery rates, and their economic determinants.