Burning Money? Government Lending in a Credit Crunch

53 Pages Posted: 22 Oct 2018

See all articles by Gabriel Jiménez

Gabriel Jiménez

Banco de España

Jose-Luis Peydro

Government of Catalan - Catalan Institution for Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Rafael Repullo

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jesus Saurina Salas

Banco de España

Date Written: October 2018

Abstract

We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.

Keywords: Adverse Selection, credit crunch, credit scoring, crowding-in, Real effects of public credit, state-owned banks

JEL Classification: E44, G01, G21, G28

Suggested Citation

Jimenez, Gabriel and Peydro, Jose-Luis and Repullo, Rafael and Saurina Salas, Jesus, Burning Money? Government Lending in a Credit Crunch (October 2018). CEPR Discussion Paper No. DP13267. Available at SSRN: https://ssrn.com/abstract=3270946

Gabriel Jimenez (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose-Luis Peydro

Government of Catalan - Catalan Institution for Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rafael Repullo

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91429 0551 (Phone)
+34 91429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~repullo/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Jesus Saurina Salas

Banco de España ( email )

Madrid 28014
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
68
PlumX Metrics