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Do financial crises discipline future credit growth?

Do financial crises discipline future credit growth? PurposeThe purpose of this paper is to test whether financial crises themselves provide some degree of ex post discipline. In other words, is there learning from the mistakes associated with crises? The authors test this hypothesis on credit growth, a frequent contributor to banking crises.Design/methodology/approachThe study uses statistical tests (comparison of means) on a sample of 72 banking crises, the onset of which occurred between 1980 and 2008. Tests for significance of the difference are conducted using Kolmogorov–Smirnov equality in distribution tests.FindingsThe results show that real credit growth fell substantially (relative to average) by about 8 per cent points from pre- to post-crisis periods, and that average banking regulation and supervision strengthens after a crisis.Originality/valueThis paper provides empirical support for the proposition that while financial markets may fail to give sufficient warning signals before a financial crisis, they may discipline governments to undertake reforms in the aftermath of a crisis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economic Policy Emerald Publishing

Do financial crises discipline future credit growth?

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1757-6385
DOI
10.1108/JFEP-03-2017-0020
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to test whether financial crises themselves provide some degree of ex post discipline. In other words, is there learning from the mistakes associated with crises? The authors test this hypothesis on credit growth, a frequent contributor to banking crises.Design/methodology/approachThe study uses statistical tests (comparison of means) on a sample of 72 banking crises, the onset of which occurred between 1980 and 2008. Tests for significance of the difference are conducted using Kolmogorov–Smirnov equality in distribution tests.FindingsThe results show that real credit growth fell substantially (relative to average) by about 8 per cent points from pre- to post-crisis periods, and that average banking regulation and supervision strengthens after a crisis.Originality/valueThis paper provides empirical support for the proposition that while financial markets may fail to give sufficient warning signals before a financial crisis, they may discipline governments to undertake reforms in the aftermath of a crisis.

Journal

Journal of Financial Economic PolicyEmerald Publishing

Published: Aug 7, 2017

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