Money, Lending and Banking Crises

Abstract

This paper shows that the bank lending channel impacts on lending and on the risk of a banking crisis. The results show that an increase in interest rates will decrease future bank lending and the likelihood of a banking crisis. This effect is dampened during recessionary periods in European countries. Policy implications are also provided. The detrimental effects of a lax monetary policy on a crisis are reduced directly by a highly capitalised financial sector and indirectly in an economy with highly liquid financial entities via lending growth.

Does Banking Management Affect Credit Risk? Evidence from the Indian Banking System

“…Failure to maintain effective credit standards with increasing loan portfolios may raise the possibility of bad loans (Ekanayake and Azeez 2015;Klein 2013). Keeton (1999), Khemraj and Pasha (2009), Meela and Prasad (2016), and Sinkey and Greenawalt (1991) showed that rapid credit growth is usually associated with poor lending decisions, indicating the probability of bad loans and the likelihood of a banking crisis increase with the increase in the LAR (Peña 2017). In contrast, Shingjergji (2013) found a negative effect of LAR on NPLs in the Albanian banking industry, which suggest an increase in the loan portfolio may not increase the NPL level.…”

Uncovering Effects of Hot Potatoes in Banking System: Arresting Die-Hard Issues

“…Lee and Lim (2019) revealed that larger service sectors also tend to increase the risk of the banking crisis. Peña (2017) facilitated that increasing interest rates will decrease future bank lending and accelerate the likelihood of a banking crisis. Vouldis and Louzis (2018) asserted that decline in industrial production is also a good predictor of financial crises.…”