Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

September 1, 2008

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Format: Chicago

Deniz O Igan, and Natalia T. Tamirisa Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe, (USA: International Monetary Fund, 2008) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the behavior of bank soundness indicators 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 weaker banks seem to have started to expand at least as fast as, and in some markets faster than, stronger 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.

Subject: Bank credit, Bank soundness, Banking, Credit, Distressed institutions

Keywords: Bank, Credit growth, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/219
Stock No:

WPIEA2008219
ISBN:

9781451870770
ISSN:

1018-5941

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