Tara Sullivan and James Vickery — A Look at Bank Loan Performance

U.S. banks experienced a rapid rise in loan delinquencies and defaults during the 2007-09 recession, driven by rising unemployment and falling real estate prices, among other factors. More than four years on from the official end of the recession, how do things look now?...

To sum up, the performance of loans in U.S bank portfolios has improved significantly, albeit unevenly, since the end of the 2007-09 recession. Differences in performance across major loan categories reflect key features of the recession itself, in particular the central role played by the collapse in real estate prices and fall in personal consumption. In the future, the tighter underwriting standards applied to more recent loan cohorts would suggest that the fraction of nonperforming loans may continue to fall over time, as earlier loan vintages become a progressively smaller share of bank portfolios. As in recent history, however, macroeconomic and financial market conditions are likely to be the main determinant of bank loan performance going forward. 

Federal Reserve Bank of New York — Liberty Street Economics
A Look at Bank Loan Performance
Tara Sullivan, senior research analyst in the Federal Reserve Bank of New York's Research and Statistics Group, and James Vickery, senior economist in the Research and Statistics Group