Working Paper: CEPR ID: DP15737
Authors: Mariassunta Giannetti; Yeejin Jang
Abstract: We show that foreign lenders and low market share lenders extend more credit in comparison to other lenders during lending booms leading to banking crises, but not during other credit expansions. Less established lenders also increase the amount of credit they extend to riskier borrowers, without asking for collateral or imposing covenants and higher interest rates. Our results suggest that taking lenders’ characteristics into account could provide an indicator for how much risk an economy is accumulating and be a useful barometer for macroprudential policies.
Keywords: foreign banks; crises; credit booms
JEL Codes: G21; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign lenders (F34) | extend more credit (G21) |
| low market share lenders (G21) | extend more credit (G21) |
| less established lenders (G21) | increase credit to riskier borrowers (G21) |
| less established lenders (G21) | higher risk appetite (G40) |
| established lenders (G21) | reduce lending (G21) |
| excessive risk-taking (G41) | financial instability (F65) |
| lender characteristics (G21) | predict risk accumulation (G22) |
| differential behavior of lenders (G21) | financial instability (F65) |