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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 REPÚBLICA in its series BORRADORES DE ECONOMIA with number 010710.

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Length: 26
Date of creation: 11 Apr 2013
Date of revision:
Handle: RePEc:col:000094:010710

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Related research

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

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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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