Credit Growth and Bank Soundness: Fast and Furious?
IMF Working Papers, December 1, 2011
Source details
- Canonical URL
- Credit Growth and Bank Soundness: Fast and Furious?
Other formats
Bibliographic details
- Authors: Deniz O Igan, Marcelo Pinheiro
- Published: December 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463925956.001
Main findings
- Using bank-level data in 90 countries between 1995 and 2005, the paper analyzes the relationship between credit growth and bank soundness while accounting for potential two-way causality.
- Sounder banks tend to grow faster during moderate-growth periods.
- During credit booms, credit growth becomes less dependent on bank soundness.
- These findings help explain why credit booms are often associated with financial crises.
Data and methodology
- Data: bank-level panel covering 90 countries.
- Sample period: 1995 to 2005.
- Empirical approach: analysis that takes into account possible two-way causality between credit growth and bank soundness.
Implications and interpretation
- The weakening link between bank soundness and credit growth during booms implies that booms can propagate credit expansion even when soundness would normally constrain growth.
- This mechanism contributes to the association between credit booms and subsequent financial crises.