Cyclicality of SME Lending and Government Involvement in Banks

32 Pages Posted: 21 Jun 2016

See all articles by Patrick Behr

Patrick Behr

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE)

Daniel Foos

Deutsche Bundesbank

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Multiple version iconThere are 2 versions of this paper

Date Written: 2015

Abstract

Recent regulatory efforts aim at lowering the cyclicality of bank lending because of its potential detrimental effects on financial stability and the real economy. We investigate the cyclicality of SME lending by local banks with vs. without a public mandate, controlling for location, size, loan maturity, funding structure, liquidity, profitability, and credit demand-side factors. The public mandate is set by local governments and stipulates a deviation from strict profit maximization and a sustainable provision of financial services to local customers. We find that banks with a public mandate are 25 percent less cyclical than other local banks. The result is credit supply-side driven and especially strong for savings banks with high liquidity and stable deposit funding. Our findings have implications for the banking structure, financial stability and the finance-growth nexus in a local context.

Keywords: Banks, Loan growth, SME finance, Business cycles, Financial stability

JEL Classification: G20, G21

Suggested Citation

Behr, Patrick and Foos, Daniel and Norden, Lars, Cyclicality of SME Lending and Government Involvement in Banks (2015). Bundesbank Discussion Paper No. 39/2015, Available at SSRN: https://ssrn.com/abstract=2797064

Patrick Behr (Contact Author)

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Brazil

Daniel Foos

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

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