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Credit Cycles, Credit Risk and Countercyclical Loan Provisions

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  • Martha López

    ()

  • Fernando TenjO

    ()

  • Héctor Zárate

    ()

Abstract

In this paper we investigate the impact of rapid credit growth on ex ante credit risk. We present micro-econometric evidence of the positive relationship between rapid credit growth and deterioration in lending portfolios: Loans granted during boom periods have higher probability of default than those granted during periods of slow credit growth. In addition, given their importance for macroprudential policy, we evaluate the effectiveness of the implementation of the countercyclical loan provisions. We find a negative relationship between the amplitude of credit cycles and this kind of macroprudential tool.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 788.

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Length: 27
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:bdr:borrec:788

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Keywords: Ex ante credit risk; credit cycles; countercyclical provisioning. Classification JEL:E32; E51; E60; G18; G21;

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  1. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  2. Delis, Manthos D. & Kouretas, Georgios P., 2011. "Interest rates and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 840-855, April.
  3. Mora, Nada & Logan, Andrew, 2010. "Shocks to bank capital: evidence from UK banks at home and away," Bank of England working papers 387, Bank of England.
  4. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
  5. Carlson, Mark & Shan, Hui & Warusawitharana, Missaka, 2013. "Capital ratios and bank lending: A matched bank approach," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 663-687.
  6. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2009. "Bank risk and monetary policy," Working Paper Series 1075, European Central Bank.
  7. Piti Disyatat, 2011. "The Bank Lending Channel Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 711-734, 06.
  8. Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 663-91, August.
  9. Martha López & Fernando Tenjo & Héctor Zárate, 2012. "The Risk-Taking Channel in Colombia Revisited," Borradores de Economia 690, Banco de la Republica de Colombia.
  10. Lucy White & Alan D. Morrison, 2002. "Crises and Capital Requirements in Banking," OFRC Working Papers Series 2002fe05, Oxford Financial Research Centre.
  11. Martha López & Juan David Prada & Norberto Rodríguez, 2009. "Evidence for a Financial Accelerator in a Small Open Economy,and Implications for Monetary Policy," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  12. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
  13. Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
  14. Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, December.
  15. Rajan, Raghuram G, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 399-441, May.
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