Credit Reversals

32 Pages Posted: 27 Feb 2021

See all articles by Francisco Vazquez

Francisco Vazquez

International Monetary Fund (IMF); International Monetary Fund

Date Written: December 22, 2020


This paper studies episodes in which aggregate bank credit contracts alongside expanding economic activity—credit reversals. Using data for 179 countries during 1960‒2017, the paper finds that reversals are a relatively common phenomenon--on average, they occur every five years. By comparison, banking crises take place every eight years on average. Credit reversals and banking crises also appear related to each other: reversals become more likely in the aftermath of banking crises, while the likelihood of crises drops following reversals. Reversals are shown to be very costly in terms of foregone economic activity—about two-thirds of the costs of banking crises, after taking into account their relative frequencies.

Keywords: Credit reversals, credit booms, credit crunches, credit cycles, banking crises, financial stability

JEL Classification: E32, E44, E51, G01, G21

Suggested Citation

Vazquez, Francisco and Vazquez, Francisco, Credit Reversals (December 22, 2020). Available at SSRN: or

Francisco Vazquez (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-6236157 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics