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Abstract:
While the finance literature often equates government banks with political capture and capital misallocation, these banks can help mitigate financial shocks. This paper examines the role of Brazil�s government banks in preventing a recession during the 2008-2010 financial crisis. Government banks in Brazil provided more credit, which offset declines in lending by private banks. Areas in Brazil with a high share of government banks experienced increases in lending, production, and employment during the crisis compared to areas with a low share of these banks. We find no evidence that lending was politically targeted or that it caused productivity to decline in the short-run.
Full paper (981 KB PDF)
Keywords
Credit, financial crises, state-owned banks, local economic activity
PDF files: Adobe Acrobat Reader ZIP files: PKWARE
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