Bank Credit During the 2008 Financial Crisis: A Cross-country Comparison, Issues 2010-2047
This paper empirically estimates the main determinants of bank credit growth during the 2008 financial crisis. Using a sample covering over 80 countries, this paper finds that larger bank credit booms prior to the crisis and lower GDP growth of trading partners are among the most important determinants of the post-crisis bank credit slowdown. Structural variables such as financial depth and integration were also relevant. Finally, countercyclical monetary policy and liquidity played a critical role in alleviating bank credit contraction after the 2008 financial crisis, suggesting that countries should pursue appropriate institutional and macroeconomic frameworks conducive to countercyclical monetary policies.
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Ill Empirical Results
Growth of Real Bank Credit to Domestic Private Sector Per Country
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2008 ﬁnancial crisis 24 months aﬁer bank credit growth banking system change in money coefﬁcient is expected column counter-cyclical monetary policy country’s credit boom prior credit contraction credit crunch credit growth post credit growth prior Credit over GDP deﬁnition dependence on wholesale dependent variable determinant of credit determinants of bank developing countries Deviation from trend dummy variable econometric EMBI Emerging Asia Emerging Europe estimated exchange rate regime expect a positive ﬁnancing ﬁrst growth of trading growth rate inﬂation Instrumental Variable intemational Lehman Brothers bankruptcy macroeconomic marginal effect market rate September Micco money market rate monthly average negative coefﬁcient OECD OECD countries Panizza Percentage change percentage point policy rates positive coefﬁcient post-Lehman Brothers bankruptcy R-squared rates of bank real bank credit Real credit growth Real GDP growth reﬂect regions regression return on equity September 2006—August September 2008 September 2008—May speciﬁcations statistically signiﬁcant Table wholesale funding Yaﬁez