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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
  • Demirgüç-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 their total liabilities and, in particular, their non-deposit liabilities relatively little during booms. 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 countercyclical tool.

Suggested Citation

  • Bertay, Ata Can & Demirgüç-Kunt, Asli & Huizinga, Harry, 2015. "Bank ownership and credit over the business cycle: Is lending by state banks less procyclical?," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 326-339.
  • Handle: RePEc:eee:jbfina:v:50:y:2015:i:c:p:326-339
    DOI: 10.1016/j.jbankfin.2014.03.012
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    More about this item

    Keywords

    State banks; Lending; Procyclicality;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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