Information sharing, credit booms and financial stability

This paper analyzes the impact of credit information sharing on financial stability,
drawing special attention to its interactions with credit booms. A probit estimation of
financial vulnerability episodes – identified by jumps of the ratio of non-performing
loans to total loans, is run for a sample of 159 countries dividing in two sub-samples
according to their level of development: 80 advanced or emerging economies and 79
less developed countries. The results show that: i) credit information sharing reduces
financial fragility for both groups of countries; ii) for less developed countries, the
main effect is the direct effect (reduction of NPL ratio once credit boom is controlled),
suggesting a portfolio quality effect; iii) for advanced and emerging countries, credit
information sharing (IS) also mitigates the detrimental impact of credit boom on financial
fragility, iv) the depth of IS has an negative impact on the likelihood of credit
booms (but not the coverage of IS).