Government loan guarantees and the credit decision-making structure

Ruth Ben-Yashar, Miriam Krausz and Shmuel Nitzan

Canadian Journal of Economics, 2018, vol. 51, issue 2, 607-625

Abstract: Governments can alleviate the problem of banks denying credit to high risk borrowers and excluding weaker sectors from borrowing by introducing state-guaranteed loan programs. The main contribution of this paper is the elucidation of the importance of the bank's credit decision-making structure in ensuring overall effectiveness of loan guarantees. In particular, the government can use the guarantee as an instrument for credit inducement and for affecting the bank's decision-making system, i.e., its degree of centralization, bias towards approval of loans and reliance on objective loan-specific information.

JEL-codes: D7 (search for similar items in EconPapers)
Date: 2018
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