Loan loss provisioning and income smoothing in US banks pre and post the financial crisis

Research output: Contribution to journalArticlepeer-review

87 Citations (Scopus)


Prior research shows that banks have strong incentives to use loan loss provisions to smooth income. Using a sample of 878 US bank holding companies over the period 2001-2009, I find strong evidence of income smoothing behavior. Additionally, bank holding companies accelerate loan loss provisions to smooth income when (1) banks hit the regulatory minimum target, (2) are in non-recessionary periods, and (3) are more profitable. I also find that bank internally set regulatory capital ratios are relatively more significant than regulatory-set ratios to trigger income smoothing behaviour using loan loss provisions. Comparing the pre-crisis boom of 2002-2006 with the crisis period of 2007-2009, I find that banks use loan loss provisions more extensively during the crisis period to smooth income upward. Collectively, the results of this paper are relevant to current concerns of accounting standard setters and bank regulators on the current model of loan loss provisioning.

Original languageEnglish
Pages (from-to)64-72
Number of pages9
JournalInternational Review of Financial Analysis
Publication statusPublished - Dec 2012
Externally publishedYes


  • Bank holding companies
  • Financial crisis
  • Income smoothing
  • Loan loss provisions

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Loan loss provisioning and income smoothing in US banks pre and post the financial crisis'. Together they form a unique fingerprint.

Cite this