The Riskiness of Credit Origins and Downside Risks to Economic Activity
IMF Working Papers, March 29, 2024
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- The Riskiness of Credit Origins and Downside Risks to Economic Activity
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Bibliographic details
- Authors: Claudio Raddatz, Dulani Seneviratne, Jerome Vandenbussche, Peichu Xie, Yizhi Xu
- Published: March 29, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400270765.001
Overview and authorship
- Title: The Riskiness of Credit Origins and Downside Risks to Economic Activity
- Authors: Claudio Raddatz, Dulani Seneviratne, Jerome Vandenbussche, Peichu Xie, Yizhi Xu
- Date: March 29, 2024
- Publication: IMF Working Paper No. 2024/072
- Pages: 53
- DOI: https://doi.org/10.5089/9798400270765.001
- ISBN: 9798400270765
- ISSN: 1018-5941
Construction of the Riskiness of Credit Origins (RCO)
- RCO is a country-level indicator capturing the extent to which aggregate bank credit growth originates from banks with a relatively riskier profile.
- RCO is constructed using bank-level data from 42 countries over more than two decades.
Stylized facts and empirical patterns
- RCO variations over time are a feature of the credit cycle.
- RCO is related to measures of:
- asset quality,
- investor and banking sector sentiment,
- future banking sector resilience.
Predictive power for downside risks to GDP growth
- RCO robustly predicts downside risks to GDP growth even after controlling for:
- aggregate bank credit growth,
- financial conditions,
- other determinants documented in the study.
Explanatory channels and mechanisms
- The paper attributes RCO’s explanatory power to its relationship with:
- asset quality,
- investor sentiment,
- banking sector sentiment,
- subsequent banking sector resilience.
Implications for theory and policy
- Findings underscore the importance of bank heterogeneity for:
- theories of the credit cycle,
- financial stability policy.
Keywords and subject focus
- Subject: Bank credit, Credit, Credit aggregates, Credit booms, Financial institutions, Loans, Money
- Keywords: Bank credit, bank credit growth, bank riskiness, bank soundness, Credit, Credit aggregates, Credit booms, credit cycle, credit growth, credit origin, credit risk, explanatory power, financial stability, financial vulnerability, Global, IMF working paper No. 24/72, investor sentiment, Loans, Private sector debt, RCO variation, Riskiness Of Credit Origins measurement, Yizhi xu
Source: IMF Working Paper No. 2024/072, "The Riskiness of Credit Origins and Downside Risks to Economic Activity" (March 29, 2024).
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