Is there a bright side to government banks? Evidence from the global financial crisis
Journal
Journal of Financial Stability
Journal Volume
26
Pages
128-143
Date Issued
2016
Author(s)
Abstract
Using a sample of banks from 56 countries, this paper investigates the lending behavior of government banks during the crisis of 2008, and its association with bank performance and the economy. Contrary to the traditional wisdom, we find that government banks can play a beneficial role under certain circumstances. Government banks have higher loan growth rates than private banks during the crisis. In countries with low corruption, the increased lending by government banks is associated with better bank performance and more favorable GDP and employment growth in the crisis period. In contrast, the results for countries with high corruption are more consistent with the political view: the increased lending by government banks is associated with underperformance relative to private banks, and creates no beneficial effects on either GDP growth or employment. ? 2016 Elsevier B.V.
Subjects
Economic growth
Financial crises
Government banks
Lending behavior
Social welfare view
Type
journal article