Bank Ownership and Credit Cycle: the lower sensitivity of public bank lending to the business cycle
AbstractThis paper examines empirically to which extent public banks feature a different pattern in their lending behaviour over macroeconomic fluctuations. Based on a unique dataset from 1990 to 2010, including at most 459 public banks in 93 countries, I can handle ownership change by including records on privatisations as well as nationalisations during banking crisis, which would otherwise blur the picture. I find that (i) public bank lending is significantly less cyclical than that of private banks, (ii) public banks cut less on their loans during economic downturns, with a positive relation between economic development and their ability to absorb macro shocks, and (iii) privatised banks switch from a regime of low to high lending cyclicality. Then, the lower co-movement of public bank loans with macroeconomic fluctuations reveals both (a) a less vulnerable balance sheet structure and more stable financing sources, which is consistent with a lending relationship business model, (b) as well as delayed loan deterioration, which is a symptom of forbearance and inefficient loan management; the actual combination of the two is not orthogonal to economic development, with high income countries more likely to feature efficient public bank lending cyclicality, while evidences suggest it may reveal an inefficient credit allocation for less developed countries.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 411.
Length: 49 pages
Date of creation: 2012
Date of revision:
lending cycle; procyclicality; public banking; privatisations; nationalisations; forbearance.;
Other versions of this item:
- Thibaut Duprey, 2013. "Bank Ownership and Credit Cycle: the lower sensitivity of public bank lending to the business cycle," PSE Working Papers halshs-00829474, HAL.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-15 (All new papers)
- NEP-BAN-2012-12-15 (Banking)
- NEP-CBA-2012-12-15 (Central Banking)
- NEP-MAC-2012-12-15 (Macroeconomics)
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