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The perverse effect of government credit subsidies on banking risk

Author

Listed:
  • Riccardo De Bonis

    (Banca d'Italia, Economics and International Relations Area)

  • Matteo Piazza

    (Banca d'Italia, Economics and International Relations Area)

  • Roberto Tedeschi

    (Banca d'Italia, Economics and International Relations Area)

Abstract

Government intervention in credit markets has been criticized as potentially conducive to distortions in the behaviour of both banks and firms. We argue that credit subsidies may lead to a decline in the level of screening performed by banks. This effect was at work in Italy in the early 1990s when subsidized lending was still important and several intermediaries experienced a deterioration in their loan portfolios. The novelty of the paper is to show that the share of government subsidized credit on a bank's loan portfolio contributes to explaining the overall credit risk of the intermediary.

Suggested Citation

  • Riccardo De Bonis & Matteo Piazza & Roberto Tedeschi, 2012. "The perverse effect of government credit subsidies on banking risk," Mo.Fi.R. Working Papers 68, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:68
    as

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    File URL: http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir068.pdf
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    References listed on IDEAS

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    Cited by:

    1. Riccardo De Bonis & Fabio Farabullini & Miria Rocchelli & Alessandra Salvio, 2012. "A Quantitative Look at the Italian Banking System: Evidence from a New Dataset since 1861," Quaderni di storia economica (Economic History Working Papers) 26, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    banks; credit risk; government subsidies;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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