Lending Behaviors of Prudent Banks around the 2008 Financial Crisis
Sung Wook Joh (Seoul National University) and Seongjun Jeong (Seoul National University)발행년도 2024Vol. 40No. 1
Before the 2008 crisis, risky banks had higher lending ratios, whereas prudent banks, characterized by high capital ratios, robust core deposit ratios, and low non-performing loan (NPL) ratios, exhibited higher excess loan growth rates. This trend was particularly notable in the context of secured real estate and household loans. Prudent banks also approved more mortgage applications than their risky counterparts. However, this proactive lending approach by prudent banks resulted in higher NPL ratios and lower profitability over time. Analyses using a prudence index confirmed these findings, indicating that prudent banks demonstrated excessive loan growth and risk-taking before the 2008 financial crisis.