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Credit Growth and Bank Soundness: Fast and Furious?
Author:
Ms. Deniz O Igan
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https://orcid.org/0000-0002-9501-1807
and
Marcelo Pinheironull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 278
Language:
English
Publication Date:
01 Dec 2011
DOI:
https://doi.org/10.5089/9781463925956.001
ISBN:
9781463925956
ISSN:
1018-5941
Pages:
27
Keywords:
WP; credit growth; bank; credit boom; bank soundness; distance to default; sounder bank; bank stability equation; data set; bank level; accumulation of risk; growth episode; bank ownership; bank supervisor; Credit; Credit booms; Bank credit; Loans; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We examine the risks to bank soundness associated with credit booms in a large set of countries. Using bank-level data in 90 countries between 1995 and 2005, we analyze the relationship between credit growth and bank soundness taking into account the potential two-way causality. We find that, while sounder banks tend to grow faster at moderate-growth periods, credit growth becomes less dependent on soundness during booms. These findings shed some light on why credit booms are often associated with financial crises.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2011: Issue 278