Government Guarantees And Bank Vulnerability During The Financial Crisis: Evidence From An Emerging Market

Viral Acharya and Nirupama Kulkarni

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: We analyze the performance of Indian banks during 2007–09 to study the impact of government guarantees on bank performance during a crisis. Vulnerable private-sector banks performed worse than safer private-sector banks; however, the opposite was true for state-owned banks. Exploiting geographic variation in exposure to public sector bank branches, we show that vulnerable private-sector bank branches in districts with greater exposure to public sector bank branches experienced deposit withdrawals and shortening of deposit maturity. In contrast, nearby vulnerable state-owned bank branches grew their deposit base and increased loan advances but with poorer ex-post performance. Our evidence suggests that lack of market discipline — in the form of access to stronger government guarantees and forbearance during an aggregate crisis — allows state-owned banks to access and extend credit cheaply despite their under-performance.

Keywords: Government Guarantees; Systemic Risk; State Ownership Language of the item (search for similar items in EconPapers)
JEL-codes: G0 G2 H1 (search for similar items in EconPapers)
Pages: 61
Date: 2016-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cafral.org.in/sfControl/content/Speech ... sAcharyaKulkarni.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.cafral.org.in:443 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022320

Access Statistics for this paper

More papers in Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL) Contact information at EDIRC.
Bibliographic data for series maintained by Vijayshree ().