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Credit, banking fragility and economic performance

Jerome Creel (), Paul Hubert and Fabien Labondance ()

No 03/2020, Sciences Po publications from Sciences Po

Abstract: Drawing on European Union data, this paper investigates the hypothesis that private credit and banking sector fragility may affect economic growth. We capture banking sector fragility both with the ratio of bank capital to assets and non-performing loans. We assess the effect of these three variables on the growth rate of GDP per capita, using the Solow growth model as a guiding framework. We observe that credit has no effect on economic performance in the EU when banking fragilities are high. However, the potential fragility of the banking sector measured by the non-performing loans decreases GDP per capita.

Keywords: Private credit; Capital to assets ratio; Non-performing loans (search for similar items in EconPapers)
JEL-codes: G10 G21 O40 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eec, nep-eff and nep-fdg
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