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Loans Growth and Banks’ Risk: New Evidence

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  • Juan Sebastián Amador Torres

    ()

  • José EDuardo Gómez G.

    ()

  • Andrés Murcia 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 of time leads to an increase in banks’ riskiness, supported by a reduction in solvency and an increase in the ratio of non-performing 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.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 763.

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Length: 26
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:bdr:borrec:763

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Keywords: Abnormal loan growth; Hazard duration models; FGLS estimation; Emerging market economies. Classification JEL: 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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