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Analysis of Stigma and Bank Credit Provision

Angela Vossmeyer

Journal of Money, Credit and Banking, 2019, vol. 51, issue 1, 163-194

Abstract: Bank rescue programs are designed to provide assistance to struggling financial intermediaries during financial crises. A complicating factor is that participating banks are often stigmatized by accepting assistance from the government. This paper investigates stigma in two ways: (i) it examines how stigma changes a bank's decision to seek assistance from the rescue program, and (ii) it analyzes how stigma affects a bank's ability to operate as a financial intermediary using a joint model for bank‐level application, approval, and lending decisions. The empirical results indicate that stigma hinders the objectives of the rescue program and slows the production of credit.

Date: 2019
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Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

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Handle: RePEc:wly:jmoncb:v:51:y:2019:i:1:p:163-194