Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe

Authors: Tamirisa, Natalia T¹; Igan, Deniz O¹

Source: Comparative Economic Studies, Volume 50, Number 4, December 2008 , pp. 599-619(21)

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Abstract:

This paper examines the behaviour of weak banks during episodes of brisk loan growth, using bank-level data for central and Eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weak banks seem to have started to expand at least as fast as, and in some markets faster than, sound banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks.Comparative Economic Studies (2008) 50, 599-619. doi:10.1057/ces.2008.35

Document Type: Research article

DOI: 10.1057/ces.2008.35

Affiliations: 1: 1International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, USA