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Innovation in Banking and Excessive Loan Growth

International Monetary Fund
Authors registered in the RePEc Author Service: Alexander F. Tieman

No 08/188, IMF Working Papers from International Monetary Fund

Abstract: The volume of credit extended by a bank can be an informative signal of its abilities in loan selection and management. It is shown that, under asymmetric information, banks may therefore rationally lend more than they would otherwise in order to demonstrate their quality, thus negatively affecting financial system soundness. Small shifts in technology and uncertainty associated with new technology may lead to large jumps in equilibrium outcomes. Prudential measures and supervision are therefore warranted.

Keywords: Bank credit; Credit demand; Economic models; Risk management; Loans; Household credit; credit screening, loan quality, signaling games, incentive compatibility, probability, banking, equation, banking system, banks ? loan, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cta and nep-tid
Date: 2008-07-01
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