Why Did Public Banks Lend More During the Global Financial Crisis?

Abstract

During the Global Financial Crisis (GFC), state-owned or public banks lent relativelymore than domestic private banks in many countries. However, data limitations havehindered a thorough assessment of what led public banks to better maintain lendingduring the GFC. Using a novel bank-level dataset covering 25 emerging marketeconomies, we show that public banks lent relatively more during the GFC becausethey pursued an objective of helping to stabilize the economy, rather than because theyhad superior fundamentals or access to public or depositors' funding. Nonetheless,their countercyclical behavior seems unique to the GFC rather than a regularcharacteristic of public banks before and after the GFC.

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