Credit Growth and Bank Soundness: Fast and Furious?

Deniz Igan and Marcelo Pinheiro

No 2011/278, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; credit growth; bank; credit boom; bank soundness; distance to default; sounder bank; bank stability equation; data set; bank level; accumulation of risk; growth episode; bank ownership; bank supervisor; Credit; Credit booms; Bank credit; Loans; Global (search for similar items in EconPapers)
Pages: 27
Date: 2011-12-01
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Citations: View citations in EconPapers (21)

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