Innovation in Banking and Excessive Loan Growth
AbstractThe volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management. It is shown that, under asymmetric information, banks may therefore rationally lend more than they would otherwise in order to demonstrate their quality, thus negatively affecting financial system soundness. Small shifts in technology and uncertainty associated with new technology may lead to large jumps in equilibrium outcomes. Prudential measures and supervision are therefore warranted.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 08/188.
Date of creation: 01 Jul 2008
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-06 (All new papers)
- NEP-BAN-2008-08-06 (Banking)
- NEP-CTA-2008-08-06 (Contract Theory & Applications)
- NEP-TID-2008-08-06 (Technology & Industrial Dynamics)
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