A Credit Crunch? a Case Study of Finland in the Aftermath of the Banking Crisis
Volume/Issue:
Volume 1996
Issue 135
Publication date: December 1996
ISBN: 9781451855661
$20.00
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Topics covered in this book
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Business and Economics , Banks and Banking , Money and Monetary Policy , WP , excess demand , bank customer , deregulation period , credit loss , business credit , bank funding , bank capital , credit demand equation , credit supply , money market debt , reduction in bank lending , bank asset value , Credit , Bank credit , Loans , Credit risk , Banking crises
Summary
This paper estimates a disequilibrium model of credit supply and demand to evaluate whether there was a credit crunch in Finland following the banking crisis of 1991-92. Empirical analysis suggests that the marked reduction in bank lending was mainly in reaction to a cyclical decline in credit demand, likely exacerbated by the high level of indebtedness of the borrowers. It also appears that banks became less willing to supply credit during periods associated with a deterioration in asset quality, and reduced profits due to declining regulatory protection from competition, and a need to increase capital adequacy levels.
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