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The Maturity Lengthening Role of National Development Banks

Alfredo Schclarek, Jiajun Xu and Jianye Yan

No 4197, Working Papers from Asociación Argentina de Economía Política

Abstract: This paper theoretically discusses why state-owned national develop- ment banks (NDBs) may be better able to provide longer-term lending to firms (investors), in comparison to private commercial banks (CBs). NDBs can grant longer-term lending to firms (investors) because NDB bonds have more value than the bonds issued by CBs, thus allowing banks to better cope with maturity mismatch risks and liquidity problems in case of needing to make interbank payments. The reason that NDB bonds have more value than the bonds issued by CBs is that NDBs are owned by the government, hence there is a higher recapitalization willingness and capac- ity compared to private bank owners. Regarding the maturity lengthening role of NDBs, it is positively related to the amount of liquid asset holdings by NDBs, the collateral value of the investment projects that receive NDB financing, and the recapitalization willingness (or perceived willingness) and financial strength, and net worth, of the government.

Keywords: Bank lending; Maturity lengthening; Debt or collateral capacity; Asset-based leverage; Interbank markets; Recapitalization; National development banks (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 H81 E51 E44 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2019-11
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