Work

Lending Booms and Lending Standards

Year: 2006

Type: article

Abstract: ABSTRACT We examine how the informational structure of loan markets interacts with banks' strategic behavior in determining lending standards, lending volume, and the aggregate allocation of credit. We show that, as banks obtain private information about borrowers and information asymmetries across banks decrease, banks may loosen their lending standards, leading to an equilibrium with deteriorated bank portfolios, lower profits, and expanded aggregate credit. These lower standards are associated with greater aggregate surplus and greater risk of financial instability. We therefore provide an explanation for the sequence of financial liberalization, lending booms, and banking crises observed in many emerging markets.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2006.01065.x

Authors: GIOVANNI DELL'ARICCIA, ROBERT MARQUEZ

Institutions: International Monetary Fund, University of Minnesota, University of British Columbia, Centre for Economic Policy Research, Arizona State University, Columbia University

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3121330589

FWCI: 41.78

Cites: 60

Cited by: 863

Related to: 10