Public bank lending in times of crisis |
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Institution: | 1. Université Paris Ouest-Nanterre La Défense, EconomiX, 200 Avenue de la République, 92001 Nanterre, France;2. SALISES, Trinidad and Tobago;3. Universidad Nacional de Córdoba, Avenida Valparaíso, 5000 Córdoba, Argentina;4. CONICET, Argentina |
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Abstract: | This paper studies the role of government-owned banks in the event of financial crises. The study takes an empirical perspective focusing on bank lending. We compare the lending responses across government-owned and private banks to financial crises using the balance sheet information of 764 major banks headquartered in 50 countries over the period of 1994–2009. Using a nested panel regression framework that allows for parameter shifts in the bank lending equation, we find robust evidence that government-owned banks increase their lending during crises relative to normal times, while private banks’ lending decreases. Government-owned banks thus counteract the lending slowdown of private banks. The findings suggest that governments can play an active counter-cyclical role in their banking systems directly through government-owned banks. |
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