Credit Growth and Bank Soundness: Fast and Furious?
December 1, 2011
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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.
Subject: Bank credit, Bank soundness, Banking, Credit, Credit booms, Financial institutions, Financial sector policy and analysis, Loans, Money
Keywords: accumulation of risk, bank, Bank credit, bank level, bank ownership, bank soundness, bank stability equation, bank supervisor, Credit, credit boom, Credit booms, credit growth, data set, distance to default, Global, growth episode, Loans, sounder bank, WP
Pages:
27
Volume:
2011
DOI:
Issue:
278
Series:
Working Paper No. 2011/278
Stock No:
WPIEA2011278
ISBN:
9781463925956
ISSN:
1018-5941
