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Bank Credit and the 2008 Financial Crisis: A cross-country Comparison

  • Ari Aisen
  • Michael Franken

The purpose of this paper is to empirically study the macroeconomic, structural and banking determinants of bank credit growth in the wake of the 2008 financial crisis. Using standard cross-section econometric techniques on a sample covering over 80 countries, analyzed in the period from January 2002 to May 2009, this paper finds that larger bank credit booms in the 24 months before the crisis and lower GDP growth of main trading partners after are among the most relevant determinants of the post-crisis bank credit slowdown. Structural variables such as financial depth and integration were also important determinants of bank credit growth after the crisis. Finally, countercyclical monetary policy and liquidity played a critical role in alleviating bank credit contraction after the 2008 financial crisis, suggesting that countries should pursue appropriate institutional and macroeconomic frameworks conducive to countercyclical monetary policies.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 532.

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Date of creation: Dec 2009
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Handle: RePEc:chb:bcchwp:532
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  1. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
  2. Barry Eichengreen & Kris Mitchener, 2003. "The Great Depression as a credit boom gone wrong," BIS Working Papers 137, Bank for International Settlements.
  3. Schularick, Moritz & Taylor, Alan M., 2009. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008," CEPR Discussion Papers 7570, C.E.P.R. Discussion Papers.
  4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
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