The Objective Function of Government-controlled Banks in a Financial Crisis

Yoshiaki Ogura

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: We present evidence that government-controlled banks significantly increased its lending to small and medium-sized enterprises (SMEs) whose main bank is a large bank operating internationally or nationwide in the 2007-2009 financial crisis. Further analyses show that both the weak relationship between them and the crowding-out due to the demand surge of large corporations that were temporarily shut out of the securities market contributed to this phenomenon. The mixed Cournot oligopoly model including a government-controlled bank, a profit-maximizing main bank providing a differentiated service, and other profit-maximizing banks providing a non-differentiated service shows that the above finding regarding a weak relationship is consistent with government-controlled banks maximizing welfare rather than their own profit.

Pages: 46 pages
Date: 2016-01
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Citations: View citations in EconPapers (2)

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Journal Article: The objective function of government-controlled banks in a financial crisis (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:16004

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