Bank non-performing loans, loan charge-offs, and crime incidence

Abstract

This study examines whether banks’ non-performing loans (NPL) and loan charge-offs (LCO) are associated with state crime rates in the U.S. Our empirical results show that both NPLs and LCOs are significantly and positively associated with crimes incidence. After disaggregating the crime rates, we find a significant and positive association between the two financial reporting variables (NPL and LCO) and property crimes such as larceny, burglary, robbery, and motor vehicle theft. We conclude that bank financial reporting variables, such as non-performing loans and loan charge-offs, can serve as leading indicators of crime rates.