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Loan growth and bank risk: new evidence

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  • Juan Amador

    ()

  • José Gómez-González

    ()

  • Andrés Pabón

    ()

Abstract

This study provides new evidence on the relationship between abnormal loan growth and banks’ risk-taking behavior using data from a rich panel of Colombian financial institutions. We show that abnormal credit growth during a prolonged period leads to an increase in banks’ riskiness, accompanied by a reduction in solvency and an increase in the ratio of nonperforming loans to total loans. We also show that abnormal credit growth played a fundamental role in the bank-failure process during the late 1990s financial crisis in Colombia. Our results have important implications for financial regulation and macro-prudential policy. Copyright Swiss Society for Financial Market Research 2013

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Bibliographic Info

Article provided by Springer in its journal Financial Markets and Portfolio Management.

Volume (Year): 27 (2013)
Issue (Month): 4 (December)
Pages: 365-379

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Handle: RePEc:kap:fmktpm:v:27:y:2013:i:4:p:365-379

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Web page: http://www.springerlink.com/link.asp?id=119763

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Keywords: Abnormal loan growth; Hazard duration models; FGLS estimation; Emerging market economies; G20; G21;

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References

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Cited by:
  1. José E. Gómez-González & Luis Fernando Melo Velandia, 2013. "Efectos de “ángeles caídos” en el mercado accionario colombiano: estudio de eventos del caso Interbolsa," Borradores de Economia 779, Banco de la Republica de Colombia.

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