OIL PRICE SHOCKS AND NONPERFORMING LOANS IN THE UNITED STATES OF AMERICA

This study examines the effects of oil price shocks on non-performing loans (NPLs) in U.S. banks from 1995 to 2023, with an emphasis on the distinct impacts across oil-producing and non-oil-producing states. Using the Ready (2018) framework, oil price fluctuations are decomposed into demand shocks, supply shocks, and risk shocks to analyze their respective influences on NPL levels. The findings indicate that oil demand shocks, reflecting increased economic activity, reduce NPL levels, whereas oil supply shocks, which elevate input costs without stimulating the economy, lead to higher NPLs. Furthermore, oil-producing states exhibit greater resilience to oil supply shocks due to their ability to capitalize on increased oil revenues, in contrast to non-oil-producing states. This study underscores the importance of differentiating between the sources of oil price shocks to better understand their implications for financial stability.