Public bank lending in times of crisis

By Michael Brei, Alfredo Schclarek. 2013

152 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/cb700d222c609a8571bb4952137a8223b9738df3