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The experience of the 1990s renewed economists’ interest in the role of credit in macroeconomic fluctuations. The locus classicus of the credit-boom view of economic cycles is the expansion of the 1920s and the Great Depression. In this paper we ask how well quantitative measures of the credit boom phenomenon can explain the uneven expansion of the 1920s and the slump of the 1930s. We complement this macroeconomic analysis with three sectoral studies that shed further light on the explanatory power of the credit boom interpretation: the property market, consumer durables industries, and high-tech sectors. We conclude that the credit boom view provides a useful perspective on both the boom of the 1920s and the subsequent slump. In particular, it directs attention to the role played by the structure of the financial sector and the interaction of finance and innovation. The credit boom and its ultimate impact were especially pronounced where the organization and history of the financial sector led intermediaries to compete aggressively in providing credit. And the impact on financial markets and the economy was particularly evident in countries that saw the development of new network technologies with commercial potential that in practice took considerable time to be realized. In addition, the structure and management of the monetary regime mattered importantly. The procyclical character of the foreign exchange component of global international reserves and the failure of domestic monetary authorities to use stable policy rules to guide the more discretionary approach to monetary management that replaced the more rigid rules-based gold standard of the earlier era are key for explaining the developments in credit markets that helped to set the stage for the Great Depression.

This study investigates the relationship between credit booms and bank risk in Association of Southeast Asian Nations (ASEAN) countries, with credit information sharing acting as a moderator.

The authors use a two-step System Generalized Method of Moments (SGMM) estimator on a sample of 79 listed banks in 5 developing ASEAN countries: Indonesia, Philippines, Malaysia, Thailand and Vietnam in the period 2006–2019. In addition, the authors perform robustness tests with different proxies for credit booms and bank risk. The data are collected on an annual basis.

Bank risk is positively related to credit booms and is negatively associated with credit information sharing. Further, credit information sharing reduces the detrimental effect of credit booms on bank stability. The authors find that both public credit registries and private credit bureaus are effective in enhancing bank stability in ASEAN countries. These results are robust to regression models with alternative proxies for credit booms and bank risk.

Banks in ASEAN countries tend to have strong lending growth to support the economy, but this could be detrimental to stability of the sector. Credit information sharing schemes should be encouraged because these schemes might enable growth of credit without compromising bank stability. Therefore, policymakers could promote private credit bureaus (PCB) and public credit registries (PCR) to realize their benefits. The authors' research focuses on developing ASEAN countries, but future research could provide more evidence by expanding this study to other emerging economies. In-depth interviews and surveys with bankers and regulatory bodies about these concerns could provide additional insights in the future.

The study is the first to examine the role of PCB and PCR in alleviating the negative impact of credit booms on bank risk. Furthermore, the authors use both accounting-based and market-based risk measures to provide a fuller view of the impact. Finally, there is little evidence on the link between credit booms, credit information sharing and bank risk in ASEAN, so the authors aim to fill this gap.

This paper analyses the collapse of credit booms into soft landings or systemic banking crises.

A discrete-time competing risks duration model is employed to disentangle the factors behind the length of benign and harmful credit booms.

The results show that economic growth and monetary authorities play the major role in explaining the differences in the length and outcome of credit booms. Moreover, both types of credit expansions display positive duration dependence, i.e. both are more likely to end as they grow older, but hard landing credit booms have proven to be longer than those that land softly.

This paper contributes to our understanding of what affects the length of credit booms and why some end up creating havoc and others do not. In particular, it calls the attention to the important role that Central Bank independence plays regarding credit booms length and outcome.

Credit booms have frequently been identified as causes of financial crises. However, credit growth, and the supply of finance, in general, is intimately associated with economic growth. The purpose of this paper is to consider why Caribbean countries go through episodes of credit booms.

Two approaches are employed to identify credit booms. The first approach uses an ad hoc classification rule, while the second technique is based on a Markov‐switching vector autoregressive approach. To explain the number of credit boom episodes occurring over a particular period, a count data model is employed.

The results suggest that credit booms were more likely to occur during periods of low inflation, above trend economic growth, investment, money supply changes, and world growth. Relatively under‐developed financial systems as well as capital account liberalisation was also associated with the emergence of credit booms.

It is also possible that bank‐specific factors (e.g. capital adequacy, share of non‐performing loans and bank competition) may also be important determinants of the emergence of credit booms. However, data on these variables were not available over the sample period.

The study provides an alternative approach to identifying credit booms. In addition, the potential role played by external factors and economic policy are also considered.

In the euro’s initial years, Greece, Ireland, Italy, Portugal and Spain observed capital flow bonanzas and credit-booms, two cycles known to precede banking crises. Domestic banks fuelled those cycles via funding obtained from foreign financial institutions. Yet, these countries’ banking and financial crises have unfolded in different modes. In Ireland and Spain, credit-booms propelled real-estate bubbles, which dragged banks into crises, with governments’ accounts later being affected when rescuing banks (Spanish regional banks, and all Irish major banks). In Greece and Italy, extra monetary means perpetuated government imbalances (e.g. debt levels above 100% of GDP, large yearly deficits). More severely in Greece, banks were brought into crises by sovereign crises. In Portugal, a mixture of private and public sector–led crises have occurred. Our comparative study finds that these crises: (1) are connected to shocks and imbalances caused by dangerous banking sector cycles during the monetary integration process; (2) were not mere expansions of the US subprime crisis; (3) were not only caused by country-specific features and institutions; and (4) followed distinct paths, therefore, a uniform model encompassing all post-euro crises cannot exist.

We test the hypothesis that credit quality deteriorates during credit booms. The test case is a pronounced cycle in connection with a banking crisis, ranked among the most extreme in international studies. A unique data set allows us to rate household borrowers during the cycle, and aggregate the ratings to the macroeconomic level. The post-crisis period is also studied to find changes in credit quality.

The method reveals significant variation in average ratings of household borrowers during the crisis cycle and its aftermath. We find that ‘point-in-time’ ratings, calculated with realised data, do not indicate deterioration in average credit quality during the credit boom. In contrast, ‘through-the-cycle’ ratings, constructed by using data that is cleaned from cyclical variation, behave in accordance with the hypothesis. By all measures used, a significant improvement in the average quality of borrowers is found during the post-crisis period.

This paper aims to examine the informational efficiency in retail credit markets to test whether behavioral biases (excessive optimism) by some participants in the banking industry might explain how credit booms are fueled by the banking sector.

This paper analyzes the conditions for the efficient market hypothesis approach to be extended to bank-based systems. A simple model of herding and limits of arbitrage that follows a three-step behavioral approach is presented (Shleifer, 2000). The model is based on duopolistic Cournot competition, where one bank is unbiased and the other is boundedly rational in terms of excessive optimism.

The paper shows why solely behavioral biases by participants in the banking industry explain how it feeds a credit bubble. According to the presented model, optimistic banks would lead the industry, while it would be rational for unbiased banks to herd under conditions that the authors derive. An important finding is the role of limits of arbitrage in the banking sector: there would be no incentives for rational banks to correct the misallocations of their biased competitors.

It might be a valid contribution to the current debate on macroprudential regulation. Should tests of rationality and correlated behavior provide evidence on the pervasiveness of behavioral biases in the banking industry suggested by our model, then banking regulation should account for it.

This paper introduces an alternative approach to analyze informational efficiency in the banking industry that, to the best of our knowledge, had not been raised so far. The model shows how behavioral biases might guide retail credit markets and why limits of arbitrage would be more pervasive in bank-based financial systems than in market-based ones.

First, the purpose of this study is to examine the relationship between foreign-currency debt and firms' financing constraints for India, the second-largest emerging market economy after China. Second, this study provides insights into how firms' financing constraints evolve prior to, during and after foreign currency borrowing. Third, it demonstrates the extent to which banks' ownership status and firms' characteristics influence the relationship between foreign currency borrowing and firms' financing constraints.

This study uses detailed balance sheet data for 2,512 nonfinancial listed firms in India for the 1996–2016 period to provide new evidence on the relationship between foreign currency borrowing and firms' financing constraints. This study uses a well-known measure of firms' financing constraints, the sensitivity of investment to internal cash flows (Fazzari et al., 1988, 2000; Hubbard, 1999; Love, 2003).

Financing constraints tend to be higher for firms with foreign currency debt exposure compared to other firms. Financing constraints are higher prior to new foreign currency borrowing (FCB), but decrease subsequently. Firms that have relationships with privately owned banks or foreign banks have higher financing constraints when undertaking new FCB than those with exclusive relationships with government-owned banks. Financing constraints for firms with FCB are higher during domestic credit booms than other periods. Nonmanufacturing firms and those with lower than median export revenues and higher than median tangible assets experience greater financing constraints compared to other firms when they undertake FCB.

The findings of this study suggest that although firms which borrow in foreign currencies are initially more financially constrained than other firms, the foreign currency borrowing reduces their financing constraints. The findings on how global and domestic macroeconomic conditions and firm-specific characteristics influence the relationship between financing constraints and foreign currency borrowing can provide directions for policy to better leverage the benefits of international financial integration.

The recurrence of banking crises throughout the 1980s and 1990s, and in the more recent 2008‐09 global financial crisis, has led to an expanding empirical literature on crisis explanation and prediction. The purpose of this paper is to provide an analytical review of proxies for and important determinants of banking crises‐credit growth, financial liberalization, bank regulation and supervision.

The study surveys the banking crisis literature by comparing proxies for and measures of banking crises and policy‐related variables in the literature. Advantages and disadvantages of different proxies are discussed.

Disagreements about determinants of banking crises are in part explained by the difference in the chosen proxies used in empirical models. The usefulness of different proxies depends partly on constraints in terms of time and country coverage but also on what particular policy question is asked.

The study offers a comprehensive analysis of measurements of banking crises, credit growth, financial liberalization and banking regulations and concludes with an assessment of existing proxies and databases. Since, the review points to the choice of proxies that best fit specific research objectives, it should serve as a reference point for empirical researchers in the banking crisis area.