Is there a bright side to government banks? Evidence from the global financial crisis

Yan Shing Chen, Yehning Chen, Chih-Yung Lin*, Zenu Sharma

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

Using a sample of banks from 56 countries, this paper investigates the lending behavior of government banks during the crisis of 2008, and its association with bank performance and the economy. Contrary to the traditional wisdom, we find that government banks can play a beneficial role under certain circumstances. Government banks have higher loan growth rates than private banks during the crisis. In countries with low corruption, the increased lending by government banks is associated with better bank performance and more favorable GDP and employment growth in the crisis period. In contrast, the results for countries with high corruption are more consistent with the political view: the increased lending by government banks is associated with underperformance relative to private banks, and creates no beneficial effects on either GDP growth or employment.

Original languageEnglish
Pages (from-to)128-143
Number of pages16
JournalJournal of Financial Stability
Volume26
DOIs
StatePublished - 1 Oct 2016

Keywords

  • Economic growth
  • Financial crises
  • Government banks
  • Lending behavior
  • Social welfare view

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