Credit Cycles, Credit Risk, and Prudential Regulation

Gabriel Jimenez and Jesús Saurina

International Journal of Central Banking, 2006, vol. 2, issue 2

Abstract: This paper finds strong empirical support of a positive, although quite lagged, relationship between rapid credit growth and loan losses. Moreover, it contains empirical evidence of more lenient credit standards during boom periods, both in terms of screening of borrowers and in collateral requirements. We find robust evidence that during upturns, riskier borrowers get bank loans, while collateralized loans decrease. We develop a regulatory prudential tool, based on a countercyclical, or forward-looking, loan loss provision that takes into account the credit risk profile of banks’ loan portfolios along the business cycle. Such a provision might contribute to reinforce the soundness and the stability of banking systems.

JEL-codes: E32 G18 G21 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (225)

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Related works:
Working Paper: Credit Cycles, Credit Risk, and Prudential Regulation (2006)
Working Paper: Credit cycles, credit risk, and prudential regulation (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2006:q:2:a:3

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