Bank Ownership and Credit Over the Business Cycle: Is Lending by State Banks Less Procyclical?

European Banking Center Discussion Paper No. 2012-013

CentER Discussion Paper Series No. 2012-049

38 Pages Posted: 21 Jun 2012

See all articles by Ata Can Bertay

Ata Can Bertay

World Bank - Development Research Group (DECRG); Tilburg University - European Banking Center

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 20, 2012

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 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

Bertay, Ata Can and Demirgüç-Kunt, Asli and Huizinga, Harry, Bank Ownership and Credit Over the Business Cycle: Is Lending by State Banks Less Procyclical? (June 20, 2012). CentER Discussion Paper Series No. 2012-049. Available at SSRN: https://ssrn.com/abstract=2088094 or http://dx.doi.org/10.2139/ssrn.2088094

Ata Can Bertay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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Tilburg University - European Banking Center ( email )

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Asli Demirgüç-Kunt

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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