Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

Natalia Tamirisa () and Deniz Igan

Comparative Economic Studies, 2008, vol. 50, issue 4, 599-619

Abstract: This paper examines the behaviour of weak banks during episodes of brisk loan growth, using bank-level data for central and Eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weak banks seem to have started to expand at least as fast as, and in some markets faster than, sound banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks. Comparative Economic Studies (2008) 50, 599–619. doi:10.1057/ces.2008.35

Date: 2008
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