A regression of sectoral loan losses against total loans losses, both measured as a percentage of total loans, of a bank results in the following beta coefficients for the real estate (RE) and commercial (CL) loan variables: b_RE = 1.2, b_CL = 1.6. The intercept for both regressions is zero. The results indicate that for the bank

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The beta coefficient for real estate loans is 1.2, indicating that for every 1% increase in total loan losses, real estate loan losses increase by 1.2%. The beta coefficient for commercial loans is 1.6, indicating that for every 1% increase in total loan losses, commercial loan losses increase by 1.6%. Therefore, both types of loans have systematically higher losses than the total loan losses.

A Regression of Sectoral Loan Losses Against Total Loans Losses