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Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

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  • Ms. Deniz O Igan
  • Ms. Natalia T. Tamirisa

Abstract

This paper examines the behavior of bank soundness indicators during episodes of brisk loan growth, using bank-level data for central and eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weaker banks seem to have started to expand at least as fast as, and in some markets faster than, stronger banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks.

Suggested Citation

  • Ms. Deniz O Igan & Ms. Natalia T. Tamirisa, 2008. "Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe," IMF Working Papers 2008/219, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/219
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    References listed on IDEAS

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    Cited by:

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    3. Korte, Josef, 2015. "Catharsis—The real effects of bank insolvency and resolution," Journal of Financial Stability, Elsevier, vol. 16(C), pages 213-231.
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    5. Pomfret, Richard, 2010. "The financial sector and the future of capitalism," Economic Systems, Elsevier, vol. 34(1), pages 22-37, March.
    6. Ms. Deniz O Igan & Marcelo Pinheiro, 2011. "Credit Growth and Bank Soundness: Fast and Furious?," IMF Working Papers 2011/278, International Monetary Fund.
    7. Schich, Sebastian T., 2009. "Challenges Associated with the Expansion of Deposit Insurance Coverage during Fall 2008," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-23.
    8. International Monetary Fund, 2013. "Haiti: 2012 Article IV Consultation and Fifth Review Under the Extended Credit Facility," IMF Staff Country Reports 2013/090, International Monetary Fund.
    9. Sophie Brana & Delphine Lahet, 2011. "THE DEPENDENCE OF CEECs ON FOREIGN BANK CLAIMS: DIRECT AND INDIRECT RISKS OF CAPITAL WITHDRAWAL," William Davidson Institute Working Papers Series wp1023, William Davidson Institute at the University of Michigan.
    10. Korte, Josef, 2013. "Catharsis - The real effects of bank insolvency and resolution," Discussion Papers 21/2013, Deutsche Bundesbank.
    11. Pavla Vodová, 2012. "Liquidity of Czech and Slovak commercial banks," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(7), pages 463-476.
    12. Al-Khouri, Ritab & Arouri, Houda, 2016. "The simultaneous estimation of credit growth, valuation, and stability of the Gulf Cooperation Council banking industry," Economic Systems, Elsevier, vol. 40(3), pages 499-518.
    13. Mr. Joe Crowley, 2015. "Central and Commercial Bank Balance Sheet Risk Before, During, and After the Global Financial Crisis," IMF Working Papers 2015/047, International Monetary Fund.
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    16. Bednarik, Radek, 2008. "Analýza volatility devizových kurzů vybraných ekonomik [The Analysis of Volatility of Selected Countries' Exchange Rates]," MPRA Paper 15046, University Library of Munich, Germany.

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    Keywords

    WP; bank; credit growth;
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