Credit booms and busts in emerging markets. The role of bank governance and risk management

We investigate to what extent corporate governance and risk management mitigate the involvement of banks in credit boom and bust cycles. We study a unique, hand-collected dataset covering 156 banks from Central and Eastern Europe during 2005–2012. We document that stronger risk management is associated with more moderate pre-crisis credit growth but not with fewer credit losses in the crisis. With respect to bank governance, we find that a higher share of foreign members on the supervisory board is associated with less rapid credit growth in the pre-crisis period and a lower level of credit losses during the crisis period.