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Government Banks and Interventions in Credit Markets

Author

Listed:
  • Gustavo Joaquim
  • Felipe Netto
  • José Renato Ornelas

Abstract

We study a large-scale quasi-experiment in the Brazilian banking sector characterized by an unexpected and macroeconomically relevant increase in lending by commercial government owned banks. Using credit registry data, we find that this intervention led to a reduction in loan interest rates by private banks with limited effects on their credit supply. Firms reliant on government banks experienced a large increase in debt, and government banks faced a significant increase in default driven by levered firms. We find a small increase in employment at the firm level, suggesting limited direct benefits of the increase in credit by the government. At the regional level, we find that branch presence cannot explain credit growth due to cross-market borrowing. Once we account for this channel, we find real effects at the regional level that are substantially larger than those at the firm level, but less than half of those from the literature.

Suggested Citation

  • Gustavo Joaquim & Felipe Netto & José Renato Ornelas, 2023. "Government Banks and Interventions in Credit Markets," Working Papers Series 579, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:579
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP579.pdf
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    Cited by:

    1. is not listed on IDEAS
    2. Er, Tarık Alperen & Deniz, Burak & Yarba, İbrahim, 2025. "Loan spreads over the credit cycle," Emerging Markets Review, Elsevier, vol. 67(C).
    3. Garber, Gabriel & Mian, Atif & Ponticelli, Jacopo & Sufi, Amir, 2024. "Consumption smoothing or consumption binging? The effects of government-led consumer credit expansion in Brazil," Journal of Financial Economics, Elsevier, vol. 156(C).

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • 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

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