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Bank ownership and credit over the business cycle : is lending by state banks less procyclical?

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  • Bertay, Ata Can
  • Demirguc-Kunt, Asli
  • Huizinga, Harry

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 the results of the analysis 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 countercyclical tool.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6110.

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Date of creation: 01 Jun 2012
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Handle: RePEc:wbk:wbrwps:6110

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Keywords: Banks&Banking Reform; Debt Markets; Bankruptcy and Resolution of Financial Distress; Access to Finance; Economic Theory&Research;

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References

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  1. Christopher Baum & Mustafa Caglayan & Oleksandr Talavera, 2009. "Parliamentary Election Cycles and the Turkish Banking Sector," Working Papers 2009/5, Turkish Economic Association.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Use state banks to stabilize the business cycle
    by Economic Logician in Economic Logic on 2012-07-19 14:18:00
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Cited by:
  1. Vernikov, Andrei, 2012. "«Национальные Чемпионы» В Структуре Российского Рынка Банковских Услуг
    [National champions and the competitive structure of the Russia
    ," MPRA Paper 40236, University Library of Munich, Germany.
  2. Eichengreen, Barry & Gupta, Poonam, 2013. "The financial crisis and Indian banks: Survival of the fittest?," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 138-152.
  3. Brei, Michael & Schclarek, Alfredo, 2013. "Public bank lending in times of crisis," Journal of Financial Stability, Elsevier, vol. 9(4), pages 820-830.
  4. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Fungacova, Zuzana & Herrala, Risto & Weill, Laurent, 2011. "The Influence of Bank Ownership on Credit Supply: Evidence from the Recent Financial Crisis," BOFIT Discussion Papers 34/2011, Bank of Finland, Institute for Economies in Transition.
  6. Adams-Kane, Jonathon & Caballero, Julian A. & Lim, Jamus Jerome, 2013. "Foreign bank behavior during financial crises," Policy Research Working Paper Series 6590, The World Bank.
  7. Ugo Panizza, 2013. "Financial Development and Economic Growth: Known Knowns, Known Unknowns, and Unknown Unknowns," IHEID Working Papers 14-2013, Economics Section, The Graduate Institute of International Studies.
  8. Cihak, Martin & Demirguc-Kunt, Asli, 2013. "Rethinking the state's role in finance," Policy Research Working Paper Series 6400, The World Bank.

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