The Real Effects of Government‐Owned Banks: Evidence from an Emerging Market

Carvalho, Daniel

doi:10.1111/jofi.12130

“…At least part of the government-driven credit expansion took the form of direct loans from BNDES. According to Carvalho (2014), those were given in exchange to employment expansion in places with tight electoral campaigns. However, this cannot be the whole story, since earmarked loans given through private banks and nonearmarked government-owned banks have also expanded substantially.…”

Section: Discussionmentioning

confidence: 99%

“…The political view of government intervention in the banking sector is supported by Sapienza (2004) and Carvalho (2014). The former, in a study of Italian banks and firms, found 6 that the lending behavior of government-owned banks is affected by the electoral results of the party affiliated with the bank.…”

Section: Introductionmentioning

confidence: 99%

“…The former, in a study of Italian banks and firms, found 6 that the lending behavior of government-owned banks is affected by the electoral results of the party affiliated with the bank. Carvalho's (2014) study, based on Brazilian regional industrylevel data, establishes that BNDES direct loans induce their borrowing firms to expand employment close to elections in regions where incumbents face competitive races. Lazzarini et al (2014) examine BNDES direct activity through loans and equity funding to assess the role of development banks using publicly traded firms' accounting data.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Macroeconomic and Financial Consequences of the Post-Crisis Government-Driven Credit Expansion in Brazil

Bonomo

¹

,

Brito²,

Martins

³

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail. Terms of use: Documents inNote that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. Abstract * Government-driven credit played an important role in countervailing the private credit crunch in Brazil during the recent financial crisis. However, government credit concessions continued to expand after the economy recovered. This paper investigates some important features of this expansion using a huge repository of loan contracts between banks and firms, composing an unbalanced panel of almost 1 million firms between 2004 and 2012. The results show that larger, older and less risky firms have benefited most from the government-sponsored credit expansion. Additionally, although higher access to earmarked credit tends to lead to higher leverage, the effect on investment appears to be insignificant for publicly traded firms. Since interest rates on earmarked loans are lower than market interest rates, firms with higher access to this type of loan tend to lower the cost of debt.JEL classifications: G20, H1, L3, O16

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“…These banks mainly lend to large international firms, the public sector, and the government. The main finding in these studies is that the large, central government-owned banks exhibit underperformance and inefficient credit allocation because of agency problems, political influence, fraud and corruption (e.g., La Porta et al, 2002;Sapienza, 2004;Dinç, 2005;Illueca et al, 2014;Carvalho, 2014). We note that virtually all studies in this field are based on data from relatively large, central or regional government-owned banks.…”

mentioning

confidence: 99%

Cyclicality of SME lending and government involvement in banks

Behr

¹

,

Foos

²

,

Nordén

³

2017

Journal of Banking & Finance

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Reproduction permitted only if source is stated. ISBN Non-technical summary Research QuestionWhich banks adjust their lending to small and medium enterprises more rapidly or more strongly to macro-economic fluctuations? How is the cyclicality of bank behavior related to the public mandate of savings banks and to the profit orientation of other banks? ContributionBased on international data, prior studies have shown how the lending behavior of large stateowned banks differs from private-sector banks, and both negative (e.g. inefficiencies and political influence) and positive aspects (e.g. the support of real sector development) have been identified. This paper looks specifically at German savings and cooperative banks, which allows for a comparison of banks with similar business models, size and regional focus. Furthermore, this study is the first to analyze how the cyclicality of lending to small and medium enterprises depends on bank ownership. ResultsComparing the behavior of these banks over several economic cycles , our results show that changes in GDP growth or alternative macro-economic variables have a significantly lower impact on lending by savings banks to small and medium enterprises than on lending by cooperative banks. This is surprising because savings banks and cooperative banks are both local banks and focus on basic financial services. The effects are sizable and robust: We control for financing structure, size, profitability and risk-taking of banks as well as for bank competition and political influence and do not find any effects that overshadow our main result. This leads us to the conclusion that policymakers can determine the cyclicality of the banking system or local banking markets by influencing the mix of banks that follow strict profit maximization and those that deviate from strict profit maximization. Nichttechnische Zusammenfassung AbstractRecent regulatory efforts aim at lowering the cyclicality of bank lending because of its potential detrimental effects on financial stability and the real economy. We investigate the cyclicality of SME lending by local banks with vs. without a public mandate, controlling for location, size, loan maturity, funding structure, liquidity, profitability, and credit demand-side factors. The public mandate is set by local governments and stipulates a deviation from strict profit maximization and a sustainable provision of financial services to local customers. We find that banks with a public mandate are 25 percent less cyclical than other local banks. The result is credit supply-side driven and especially strong for savings banks with high liquidity and stable deposit funding. Our findings have implications for the banking structure, financial stability and the finance-growth nexus in a local context.

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“…Political influence on lending behavior of public banks has been widely documented in the literature (e.g., La Porta et al, 2002;Sapienza, 2004;Dinç, 2005;Carvalho, 2014). As described earlier, most of these studies focus on large public banks that are owned or controlled by central governments, hence, their settings are not closely comparable to ours.…”

Section: Modelmentioning

confidence: 73%

Cyclicality of SME Lending and Government Involvement in Banks

Behr

¹

,

Foos

²

,

Nordén

³

2015

View full text Add to dashboard Cite

Reproduction permitted only if source is stated. ISBN Non-technical summary Research QuestionWhich banks adjust their lending to small and medium enterprises more rapidly or more strongly to macro-economic fluctuations? How is the cyclicality of bank behavior related to the public mandate of savings banks and to the profit orientation of other banks? ContributionBased on international data, prior studies have shown how the lending behavior of large stateowned banks differs from private-sector banks, and both negative (e.g. inefficiencies and political influence) and positive aspects (e.g. the support of real sector development) have been identified. This paper looks specifically at German savings and cooperative banks, which allows for a comparison of banks with similar business models, size and regional focus. Furthermore, this study is the first to analyze how the cyclicality of lending to small and medium enterprises depends on bank ownership. ResultsComparing the behavior of these banks over several economic cycles , our results show that changes in GDP growth or alternative macro-economic variables have a significantly lower impact on lending by savings banks to small and medium enterprises than on lending by cooperative banks. This is surprising because savings banks and cooperative banks are both local banks and focus on basic financial services. The effects are sizable and robust: We control for financing structure, size, profitability and risk-taking of banks as well as for bank competition and political influence and do not find any effects that overshadow our main result. This leads us to the conclusion that policymakers can determine the cyclicality of the banking system or local banking markets by influencing the mix of banks that follow strict profit maximization and those that deviate from strict profit maximization. Nichttechnische Zusammenfassung AbstractRecent regulatory efforts aim at lowering the cyclicality of bank lending because of its potential detrimental effects on financial stability and the real economy. We investigate the cyclicality of SME lending by local banks with vs. without a public mandate, controlling for location, size, loan maturity, funding structure, liquidity, profitability, and credit demand-side factors. The public mandate is set by local governments and stipulates a deviation from strict profit maximization and a sustainable provision of financial services to local customers. We find that banks with a public mandate are 25 percent less cyclical than other local banks. The result is credit supply-side driven and especially strong for savings banks with high liquidity and stable deposit funding. Our findings have implications for the banking structure, financial stability and the finance-growth nexus in a local context.

show abstract

The Real Effects of Government‐Owned Banks: Evidence from an Emerging Market

Cited by 314 publications

References 52 publications

Macroeconomic and Financial Consequences of the Post-Crisis Government-Driven Credit Expansion in Brazil

Macroeconomic and Financial Consequences of the Post-Crisis Government-Driven Credit Expansion in Brazil

Cyclicality of SME lending and government involvement in banks

Cyclicality of SME Lending and Government Involvement in Banks

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