Bank ownership,lending, and local economic performance during the 2008–2009 financial crisis |
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| Institution: | 1. Federal Reserve Board, Division of International Finance, 20th Street and Constitution Avenue NW, Washington, DC 20551, United States;2. Johns Hopkins University, School of Advanced International Studies, 1717 Massachusetts Avenue NW, Washington, DC 20036, United States;1. Bank of Italy, Via Nazionale 91, 00184 Rome, Italy;2. European Central Bank, Kaiserstrasse 2960311 Frankfurt am Main, Germany;3. Monetary and Economic Department, Bank for International Settlements, Centralbahnplatz 2, CH-4002 Basel, Switzerland;1. Money Market, Swiss National Bank, Boersenstrasse 15, 8022 Zurich, Switzerland;2. Financial Stability – Oversight, Swiss National Bank, Bundesplatz 1, 3003 Bern, Switzerland;1. Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, 03690 Alicante, Spain;2. CeRP (Collegio Carlo Alberto), Italy;3. Università di Torino, Italy;4. London Business School, UK;1. Federal Reserve Bank of New York, 33 Liberty St, New York, NY 10045, USA;2. Monash University, 900 Dandenong Rd, Building H, Caulfield, VIC 3145, Australia;1. Insper Institute of Education and Research, São Paulo, Brazil;2. International Business School-Brandeis University, Waltham, USA;3. Harvard Business School, Boston, USA;4. National Bureau of Economic Research, Cambridge, USA;5. Getulio Vargas Foundation (FGV-EAESP), São Paulo, Brazil;6. Universidade do Vale do Itajaí (UNIVALI), Itajai, Brazil |
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| Abstract: | Although government banks are frequently associated with political capture and resource misallocation, they may be well-positioned during times of crisis to provide counter-cyclical support. Following the collapse of Lehman Brothers in September 2008, Brazil׳s government banks substantially increased lending. Localities in Brazil with a high share of government banks received more loans and experienced better employment outcomes relative to localities with a low share of government banks. While increased government bank lending mitigated an economic downturn, we find that this lending was politically targeted, inefficiently allocated, and reduced productivity growth. |
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| Keywords: | Credit Financial crises State-owned banks Local economic activity |
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