Bank Ownership and Credit Over the Business Cycle: Is Lending by State Banks Less Procyclical?
CentER Discussion Paper Series No. 2012-049
38 Pages Posted: 21 Jun 2012
Date Written: June 20, 2012
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 potentially unstable non-deposit liabilities relatively little during booms, especially in countries with good governance. 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 counter-cyclical tool.
Keywords: state banks, lending, procyclicality
JEL Classification: G21, H44
Suggested Citation: Suggested Citation