Burning Money? Government Lending in a Credit Crunch

Gabriel Jimenez, Jose-Luis Peydro, Rafael Repullo and Jesús Saurina

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Abstract: We analyze a small, new credit facility of a Spanish state-owned bank during the crisis, using its continuous credit scoring system, its firm-level scores, and the credit register. Compared to privately-owned banks, the state-owned bank faces worse applicants, (softens) tightens its credit supply to (un)observed riskier firms, and has much higher defaults, especially driven by unobserved ex-ante borrower risk. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive. Overall, our results provide evidence on the existence of significant adverse selection problems in credit markets.

Keywords: adverse selection; state-owned banks; credit crunch; real effects of public credit; crowding-in (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban and nep-mac
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https://www.econstor.eu/bitstream/10419/216801/1/1577.pdf (application/pdf)

Related works:
Working Paper: Burning money? Government lending in a credit crunch (2019)
Working Paper: Burning Money? Government Lending in a Credit Crunch (2018)
Working Paper: Burning Money? Government Lending in a Credit Crunch (2018)
Working Paper: Burning Money? Government Lending in a Credit Crunch (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:216801

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