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Credit Cycles, Credit Risk, and Prudential Regulation

Jesús Saurina () and Gabriel Jimenez

MPRA Paper from University Library of Munich, Germany

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.

Keywords: credit risk; lending cycles; loan loss provisions; bank capital; collateral (search for similar items in EconPapers)
JEL-codes: G0 G00 (search for similar items in EconPapers)
Date: 2006-03-20
New Economics Papers: this item is included in nep-ban, nep-mac, nep-reg and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (177)

Published in International Journal of Central Banking Number 2.Volume(2006): pp. 65-98

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/718/1/MPRA_paper_718.pdf original version (application/pdf)

Related works:
Journal Article: Credit Cycles, Credit Risk, and Prudential Regulation (2006) Downloads
Working Paper: Credit cycles, credit risk, and prudential regulation (2005) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:718

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