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Credit Booms and Lending Standards

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Author Info

  • Giovanni Dell'Ariccia
  • Luc Laeven
  • Deniz Igan

Abstract

This paper links the current sub-prime mortgage crisis to a decline in lending standards associated with the rapid expansion of this market. We show that lending standards declined more in areas that experienced larger credit booms and house price increases. We also find that the underlying market structure mattered, with entry of new, large lenders triggering declines in lending standards by incumbent banks. Finally, lending standards declined more in areas with higher mortgage securitization rates. The results are consistent with theoretical predictions from recent financial accelerator models based on asymmetric information, and shed light on the relationship between credit booms and financial instability.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/106.

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Length: 37
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/106

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Related research

Keywords: Moral hazard; Credit expansion; Housing; Industrial structure; Financial instruments; applications; mortgage; mortgage market; mortgage lenders; mortgages; mortgage lending; mortgage industry; residential mortgage; mortgage markets; mortgage-backed securities; mortgage credit; housing finance; risk profiles; underwriting; mortgage loans; risk taking; home mortgage; mortgage loan; home equity; risk profile; risk mortgages; risk management; foreclosure; mortgage default; subprime mortgage lending; current mortgage; collateralization; mortgage choice; banking crises; mortgage applications; credit risk; mortgage backed securities;

This paper has been announced in the following NEP Reports:

References

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  24. repec:fip:fedgsq:y:2007:i:aug31 is not listed on IDEAS
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