Speaker: Rafael Repullo is Professor of Economics and Director at Centro de Estudios Monetarios y Financieros (CEMFI). More »

Abstract: Monetary policy via liquidity provision to banks may have limits to reach firms in financial crises, and hence there may be a role for direct public lending to firms via state-owned banks. We analyze such lending in a credit crunch, the potential adverse selection faced by these banks, and the associated real effects. For identification, we exploit a new credit facility set up in Spain by its state-owned bank in 2010-2012, the bank’s credit scoring system to grant loan applications, and the exhaustive credit register matched with firm balance sheet data. We first show that the pool of loan applicants to the new facility was substantially riskier than for privately-owned banks, that the state-owned bank was tougher in granting loans, and that nevertheless these loans had a much higher default rate. Then, in a regression discontinuity approach, we exploit the continuous scoring system used by the state-owned bank to grant (or reject) loan applications to show that its lending led to higher firm survival, employment, assets, and sales, as well as higher probability of getting new loans from private banks.

*This is a joint event with IMF.

Last Updated: May 02, 2016