{
  "title": "Innovation in Banking and Excessive Loan Growth",
  "publication": "IMF Working Papers, July 1, 2008",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/innovation-in-banking-and-excessive-loan-growth-22178",
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  "summary": "The volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management. It is shown that, under asymmetric information, banks may therefore rationally lend more than they would otherwise in order to demonstrate their quality, thus negatively affecting",
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    {
      "heading": "Summary findings",
      "content": "- The volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management.\n- Under asymmetric information, banks may rationally lend more than they otherwise would in order to demonstrate their quality, thus negatively affecting financial system soundness.\n- Small shifts in technology and uncertainty associated with new technology may lead to large jumps in equilibrium outcomes.\n- Prudential measures and supervision are therefore warranted."
    },
    {
      "heading": "Key implications for financial stability and policy",
      "content": "- Lending incentives tied to signaling can produce excessive loan growth even when banks behave rationally.\n- Technological change (and uncertainty about new technology) can create non-linear shifts in equilibrium lending outcomes, increasing systemic risk.\n- Regulatory and supervisory responses are justified to mitigate the risks from signaling-driven credit expansion and technology-driven jumps in outcomes."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subject: Bank credit, Banking, Credit, Loans, Technology\n- Keywords: loan technology, low-technology bank, WP\n\n---\n\n Content in this bundle\n\n- Wp08188\n  - Wp08188 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp08188 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/innovation-in-banking-and-excessive-loan-growth-22178"
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    "[Markdown version](/en/publications/wp/issues/2016/12/31/innovation-in-banking-and-excessive-loan-growth-22178/index.md)",
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    "Published: July 1, 2008",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451870466.001",
    "The volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management.",
    "Under asymmetric information, banks may rationally lend more than they otherwise would in order to demonstrate their quality, thus negatively affecting financial system soundness.",
    "Small shifts in technology and uncertainty associated with new technology may lead to large jumps in equilibrium outcomes.",
    "Prudential measures and supervision are therefore warranted.",
    "Lending incentives tied to signaling can produce excessive loan growth even when banks behave rationally.",
    "Technological change (and uncertainty about new technology) can create non-linear shifts in equilibrium lending outcomes, increasing systemic risk.",
    "Regulatory and supervisory responses are justified to mitigate the risks from signaling-driven credit expansion and technology-driven jumps in outcomes.",
    "Subject: Bank credit, Banking, Credit, Loans, Technology",
    "Keywords: loan technology, low-technology bank, WP",
    "**Wp08188**"
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