Burning Money? Government Lending in a Credit Crunch

Arbeitspapier

We analyze a small, new credit facility of a Spanish state-owned bank during the crisis, using its continuous credit scoring system, its firm-level scores, and the credit register. Compared to privately-owned banks, the state-owned bank faces worse applicants, (softens) tightens its credit supply to (un)observed riskier firms, and has much higher defaults, especially driven by unobserved ex-ante borrower risk. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive. Overall, our results provide evidence on the existence of significant adverse selection problems in credit markets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economic Working Paper Series ; No. 1577

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: adverse selection ; state-owned banks ; credit crunch ; real effects of public credit ; crowding-in

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jiménez, Gabriel ; Peydró, José-Luis ; Repullo, Rafael ; Saurina, Jesús
• Event: Veröffentlichung
• (who): Universitat Pompeu Fabra (upf), Department of Economics and Business
• (where): Barcelona
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/216801
• Last update: 10.03.2025, 11:42 AM CET