Bank ownership and credit over the business cycle

Is lending by state banks less procyclical?

A.C. Bertay, Asli Demirguc-Kunt, Harry Huizinga

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper finds that lending by state banks is less procyclical than lending by private banks, especially in countries with good governance. Lending by state banks in high income countries is even countercyclical. On the liability side, state banks expand their total liabilities and, in particular, their non-deposit liabilities relatively little during booms. Public banks also report loan non-performance more evenly over the business cycle. Overall our results suggest that state banks can play a useful role in stabilizing credit over the business cycle as well as during periods of financial instability. However, the track record of state banks in credit allocation remains quite poor, questioning the wisdom of using state banks as a short term countercyclical tool.
Original languageEnglish
Pages (from-to)326-339
JournalJournal of Banking and Finance
Volume50
DOIs
Publication statusPublished - Jan 2015

Fingerprint

Business cycles
Bank ownership
Lending
Bank credit
Liability
Loans
Credit allocation
Income
Wisdom
Financial instability
Credit

Keywords

  • state banks
  • lending
  • procyclicality

Cite this

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title = "Bank ownership and credit over the business cycle: Is lending by state banks less procyclical?",
abstract = "This paper finds that lending by state banks is less procyclical than lending by private banks, especially in countries with good governance. Lending by state banks in high income countries is even countercyclical. On the liability side, state banks expand their total liabilities and, in particular, their non-deposit liabilities relatively little during booms. Public banks also report loan non-performance more evenly over the business cycle. Overall our results suggest that state banks can play a useful role in stabilizing credit over the business cycle as well as during periods of financial instability. However, the track record of state banks in credit allocation remains quite poor, questioning the wisdom of using state banks as a short term countercyclical tool.",
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Bank ownership and credit over the business cycle : Is lending by state banks less procyclical? / Bertay, A.C.; Demirguc-Kunt, Asli; Huizinga, Harry.

In: Journal of Banking and Finance, Vol. 50, 01.2015, p. 326-339.

Research output: Contribution to journalArticleScientificpeer-review

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