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Credit Growth and Bank Soundness

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Author Info

  • Deniz Igan
  • Marcelo Pinheiro

Abstract

We examine the risks to bank soundness associated with credit booms in a large set of countries. Using bank-level data in 90 countries between 1995 and 2005, we analyze the relationship between credit growth and bank soundness taking into account the potential two-way causality. We find that, while sounder banks tend to grow faster at moderate-growth periods, credit growth becomes less dependent on soundness during booms. These findings shed some light on why credit booms are often associated with financial crises.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/278.

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Length: 27
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/278

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Related research

Keywords: Bank soundness; Banks; Credit expansion; Economic models; equation; statistics; net interest margin; bank credit; standard deviation; equations; banking; liquidity ratio; bank ownership; standard errors; financial statistics; simultaneous equation; return on assets; equation system; outliers; probability; bank classification; standard deviations; empirical model; significance levels; banking crises; bank stocks; measurement errors; interest expense; national bank; covariance; logarithm; bank supervision; autocorrelation; bank balance sheet; income statement; bank lending behavior; econometrics; dummy variable; banking system; banking reform; significance level; systemic banking crisis; statistical tests; bank organization; bank weakness; banking systems; bank loan; covariances; linear models; bank stability; bank capital; bank risks; bank supervisors; bank profitability; banking crisis; banking structure; macroeconomic stability; probability of default; bank loans; correlation; bank lending; bank size;

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References

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  1. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, 03.
  2. Alejandro Micco & Ugo Panizza & Mónica Yañez, 2004. "Bank Ownership and Performance," IDB Publications 6685, Inter-American Development Bank.
  3. Deniz Igan & Natalia T. Tamirisa, 2008. "Are Weak Banks Leading Credit Booms? Evidence From Emerging Europe," IMF Working Papers 08/219, International Monetary Fund.
  4. Stijn Claessens & Luc Laeven & Deniz Igan & Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications From the Global Financial Crisis," IMF Working Papers 10/44, International Monetary Fund.
  5. Randa Sab & Stephen C. Smith, 2002. "Human Capital Convergence: A Joint Estimation Approach," IMF Staff Papers, Palgrave Macmillan, vol. 49(2), pages 3.
  6. Burcu Aydin, 2008. "Banking Structure and Credit Growth in Central and Eastern European Countries," IMF Working Papers 08/215, International Monetary Fund.
  7. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
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Citations

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Cited by:
  1. Wagner, Charlotte & Winkler, Adalbert, 2013. "The Vulnerability of Microfinance to Financial Turmoil – Evidence from the Global Financial Crisis," World Development, Elsevier, vol. 51(C), pages 71-90.
  2. Burcu Aydin, 2008. "Banking Structure and Credit Growth in Central and Eastern European Countries," IMF Working Papers 08/215, International Monetary Fund.

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