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Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

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  • Natalia T Tamirisa

    (International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA)

  • Deniz O Igan

    (International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA)

Abstract

This paper examines the behaviour of weak banks 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 weak banks seem to have started to expand at least as fast as, and in some markets faster than, sound 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. Comparative Economic Studies (2008) 50, 599–619. doi:10.1057/ces.2008.35

Suggested Citation

  • Natalia T Tamirisa & Deniz O Igan, 2008. "Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 50(4), pages 599-619, December.
  • Handle: RePEc:pal:compes:v:50:y:2008:i:4:p:599-619
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    Citations

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    Cited by:

    1. Fenech, Jean-Pierre & Yap, Ying Kai & Shafik, Salwa, 2014. "Can the Chinese banking system continue to grow without sacrificing loan quality?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 315-330.
    2. Korte, Josef, 2015. "Catharsis—The real effects of bank insolvency and resolution," Journal of Financial Stability, Elsevier, vol. 16(C), pages 213-231.
    3. Pomfret, Richard, 2010. "The financial sector and the future of capitalism," Economic Systems, Elsevier, vol. 34(1), pages 22-37, March.
    4. International Monetary Fund, 2013. "Haiti; 2012 Article IV Consultation and Fifth Review Under the Extended Credit Facility," IMF Staff Country Reports 13/90, International Monetary Fund.
    5. Csaba, László, 2009. "A szovjetológiától az új intézményi közgazdaságtanig - töprengések két évtized távlatából
      [From Sovietology to the new institutional economics - meditations from a distance of two decades]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 749-768.
    6. Joseph Crowley, 2015. "Central and Commercial Bank Balance Sheet Risk Before, During, and After the Global Financial Crisis," IMF Working Papers 15/47, International Monetary Fund.
    7. 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.
    8. Pavla VODOVÁ, 2013. "Liquidity Ratios of Polish Commercial Banks," European Financial and Accounting Journal, University of Economics, Prague, vol. 2013(3).

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