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Post by Sapphire Capital on Oct 21, 2008 1:48:01 GMT 4
Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market Luc Laeven International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR) Deniz Igan International Monetary Fund (IMF) - Financial Studies Division Giovanni Dell'Ariccia International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR) April 2008 IMF Working Paper No. 08/106 Abstract: This paper links the current sub-prime mortgage crisis to a decline in lending standards associated with the rapid expansion of this market. We show that lending standards declined more in areas that experienced larger credit booms and house price increases. We also find that the underlying market structure mattered, with entry of new, large lenders triggering declines in lending standards by incumbent banks. Finally, lending standards declined more in areas with higher mortgage securitization rates. The results are consistent with theoretical predictions from recent financial accelerator models based on asymmetric information, and shed light on the relationship between credit booms and financial instability. papers.ssrn.com/sol3/Delivery.cfm/wp08106.pdf?abstractid=1153728&mirid=1
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