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Loan growth and bank risk: new evidence

  • Juan Amador


  • José Gómez-González


  • Andrés Pabón


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 leads to an increase in banks’ riskiness, accompanied by a reduction in solvency and an increase in the ratio of nonperforming 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. Copyright Swiss Society for Financial Market Research 2013

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Article provided by Springer & Swiss Society for Financial Market Research in its journal Financial Markets and Portfolio Management.

Volume (Year): 27 (2013)
Issue (Month): 4 (December)
Pages: 365-379

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Handle: RePEc:kap:fmktpm:v:27:y:2013:i:4:p:365-379
DOI: 10.1007/s11408-013-0217-6
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