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Loans Growth and Banks´ Risk: New Evidence

  • Juan Sebastián Amador Torres

    ()

  • José Eduardo Gómez G.

    ()

  • Andrés Murcia 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 of time leads to an increase in banks´ riskiness, supported by a reduction in solvency and an increase in the ratio of non-performing 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.

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 010710.

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Length: 26
Date of creation: 11 Apr 2013
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Handle: RePEc:col:000094:010710
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