Innovation in Banking and Excessive Loan Growth

International Monetary Fund

No 2008/188, 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: WP; loan technology; low-technology bank (search for similar items in EconPapers)
Pages: 28
Date: 2008-07-01
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Citations: View citations in EconPapers (1)

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