Credit Growth and Bank Soundness: Fast and Furious?

December 1, 2011

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Format: Chicago

Deniz O Igan, and Marcelo Pinheiro. Credit Growth and Bank Soundness: Fast and Furious?, (USA: International Monetary Fund, 2011) accessed December 3, 2024

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.

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

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/278
Stock No:

WPIEA2011278
ISBN:

9781463925956
ISSN:

1018-5941

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