Bank ownership and credit over the business cycle Is lending by state banks less procyclical.pdf.pdf

Journal of Banking & Finance 50 (2015) 326–339
Contents lists available at ScienceDirect
Journal of Banking & Finance
journal homepage: ate/jbf
Bank ownership and credit over the business cycle: Is lending by state
banks less procyclical?
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Ata Can Bertay a, Asli Demirgüç-Kunt b, Harry Huizinga a,c,
a Tilburg University, Netherlands
b World Bank, United States
c CEPR, United Kingdom
article info abstract
Article history: This paper finds that lending by state banks is less procyclical than lending by private banks, especially in
Received 12 September 2013 countries with good governance. Lending by state banks in high e countries is even countercyclical.
Accepted 11 March 2014 On the liability side, state banks expand their total liabilities and, in particular, their non-deposit liabil-
Available online 26 March 2014
ities 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
JEL classification: the business cycle as well as during periods of financial instability. However, the track record of state
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banks in credit allocation remains quite poor, questioning the wisdom of using state banks as a short
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term countercyclical tool.
Keywords: Ó 2014 Elsevier . All rights reserved.
State banks
Lending
Procyclicality
1. Introduction capacities to provide new loans. Our analysis is based on a sample
of 1633 banks from 111 countries over the 1999–2010 period.
During the recent global financial crisis, several countries were We find that lending by state banks is less procyclical than the
forced to nationalize failing private banks. Abn Amro in h- lending by private banks, especially if the bank is located in a coun-
erlands, for instance, is now fully owned by the Dutch government. try with good governance. We capture good governance by an
As a result, the average share of gove