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Lending Behaviors of Prudent Banks around the 2008 Financial Crisis

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Listed:
  • Sung Wook Joh

    (Seoul National University)

  • Seongjun Jeong

    (Seoul National University)

Abstract

Before the 2008 crisis, risky banks had higher lending ratios, whereas prudent banks, characterized by high capital ratios, robust core deposit ratios, and low non-performing loan (NPL) ratios, exhibited higher excess loan growth rates. This trend was particularly notable in the context of secured real estate and household loans. Prudent banks also approved more mortgage applications than their risky counterparts. However, this proactive lending approach by prudent banks resulted in higher NPL ratios and lower profitability over time. Analyses using a prudence index confirmed these findings, indicating that prudent banks demonstrated excessive loan growth and risk-taking before the 2008 financial crisis.

Suggested Citation

  • Sung Wook Joh & Seongjun Jeong, 2024. "Lending Behaviors of Prudent Banks around the 2008 Financial Crisis," Korean Economic Review, Korean Economic Association, vol. 40, pages 107-148.
    • Handle: RePEc:kea:keappr:ker-20240101-40-1-04
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    More about this item

    Keywords

    Lending behavior; Risk Taking; Bank Performance; Financial Crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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