The Effect of Regulatory and Risk Management Advancement on Non-Performing Loans in European Banking, 2000–2011 Didar Erdinç 1 & Andrey Gurov 1 # International Atlantic Economic Society 2016 Abstract We study whether the implementation of advanced risk management tech- niques in compliance with the internal ratings-based (IRB) approaches in the Basel Capital Accord reduced non-performing loans (NPLs) and, hence, had a significant impact in controlling credit risk in emerging and advanced European banks during 2000–2011. Our analysis reveals that there exists wide variation in terms of adoption of such advanced techniques across European banks. Emerging Europe, which suffered the most from the surge in NPLs in the post-crisis period, lags significantly behind the Eurozone economies in terms of the intensity of IRB adoption rates. We employ dynamic generalized method of moments (GMM) estimation methods in our panel regressions to investigate the effect of such regimes on the level of NPLs on a country level. Our findings confirm that the intensity of IRB usage within a banking system leads to a statistically significant decrease in the aggregate amount of NPLs in the post-crisis period, after controlling for macroeconomic and bank-specific characteristics of individual economies. This result is consistent with the view that the efficiency of credit risk management may turn out to be a critical factor in avoiding widespread banking distress and for improving the profitability and sol- vency of banking systems as a whole. Keywords Bank efficiency . Risk management . Non-performing loans . Panel data . Generalized method of moments JEL Classification G20 . G32 . G33 Int Adv Econ Res DOI 10.1007/s11294-016-9591-y * Didar Erdinç didar@aubg.edu 1 Department of Economics, Balkanski Academic Center, American University in Bulgaria, 2700 Blagoevgrad, Bulgaria