Working Paper: CEPR ID: DP9034
Authors: Ata Can Bertay; Asli Demirgüç-Kunt; Harry Huizinga
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: lending; procyclicality; state banks
JEL Codes: G21; H44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP per capita growth (O49) | Lending by private banks (G21) |
| GDP per capita growth (O49) | Lending by state banks (G21) |
| Good governance (G38) | Lending by state banks is less procyclical than private banks (G21) |
| Banking crises (G01) | Lending by state banks (G21) |
| Economic booms (E32) | Nondeposit liabilities of state banks (H74) |