Revisiting the Stabilization Role of Public Banks: Public Debt Matters

January 15, 2021

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H. Elif Ture Revisiting the Stabilization Role of Public Banks: Public Debt Matters, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper revisits the stabilization role of public banks and analyzes whether weak public finances may hinder this role. During the global financial crisis (GFC), public banks were widely used to counter the private credit crunch and prop up the economy. Using cross-country bank-level data for 125 advanced and developing economies for 1999–2018, the paper finds public bank lending to be less procyclical than private bank lending on average, particularly during busts. A key result, however, is that in developing economies with high public debt levels, public bank lending has been more procyclical, particularly outside of the GFC period. This finding suggests high public debt can limit the stabilization role of public banks during domestic busts, likely reflecting higher financing costs public banks face and lower subsidies they receive in economies with tighter budget constraints.

Subject: Bank credit, Global financial crisis of 2008-2009, Loans, Public debt, State-owned banks

Keywords: Bank borrowing costs, Bank lending, Countercyclical lending, Development bank, Doom loop, Economic stabilization, High public debt, Public bank, Public banks, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/007
Stock No:

WPIEA2021007
ISBN:

9781513566788
ISSN:

1018-5941

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