Effects of a banking crisis on credit growth in developing countries

Abstract This study examines how a banking crisis affects credit growth in developing countries by considering two states of financial conditions: financial cycles and financial development. We estimate dynamic responses of credit growth to a banking crisis by using the local projection method. Our empirical results reveal that a banking crisis has an adverse impact on the credit cycle, and this negative effect is more substantial during a financial boom. We also find that the negative crisis effect is further magnified in countries with a high level of financial development.