Sector-specific analysis of non-performing loans in the US banking system and their macroeconomic impact

Although a growing literature has analyzed the determinants of non-performing loans (henceforth NPLs), very few studies have explored the issue at the disaggregate level. Such an analysis unmasks important differences in the inter-relationships between macroeconomic and balance sheet conditions and different categories of NPLs. The present study examines sector-specific NPLs in the US using data for the 100 largest commercial banks over the period 1992q4-2016q1. While total NPLs remain sensitive to different balance sheet and US macroeconomic conditions, this is most accentuated for real estate loans and its different constituent categories, and commercial & industrial loans. The paper further explores the impact of NPLs on sector-specific product and labor markets. Total NPLs have the most pronounced effect on US housing prices, real GDP growth and housing starts. At the disaggregate level, non-performing construction & land development and C&I loans have the most persistent pernicious impact on corresponding sector-specific employment growth.