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Credit Growth and Bank Soundness : Fast and Furious?

Author/Editor: Deniz Igan | Marcelo Pinheiro
Authorized for Distribution: December 1, 2011
Electronic Access: Free Full Text (PDF file size is 937KB)
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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: We examine the risks to bank soundness associated with credit booms in a large set of countries. Using bank-level data in 90 countries between 1995 and 2005, we analyze the relationship between credit growth and bank soundness taking into account the potential two-way causality. We find that, while sounder banks tend to grow faster at moderate-growth periods, credit growth becomes less dependent on soundness during booms. These findings shed some light on why credit booms are often associated with financial crises.
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Series: Working Paper No. 11/278
Subject(s): Bank soundness | Banks | Credit expansion | Economic models
Author's keyword(s): Credit growth | credit boom | bank soundness | distance to default
    Published:   December 1, 2011        
    ISBN/ISSN:   9781463925956/1018-5941   Format:   Paper
    Stock No:   WPIEA2011278   Pages:   27
    Price:   US$18.00
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