Paper #1510

Títol:

Public development banks and credit market imperfections

Autors:

Marcela Eslava i Xavier Freixas

Data:

Gener 2016

Resum:

This paper is devoted to understanding the role of public development banks in alleviating financial market imperfections. We explore two issues: 1) which types of firms should be optimally targeted by public financial support; and 2) what type of mechanism should be implemented in order to efficiently support the targeted firms� access to credit. We model firms that face moral hazard and banks that have a costly screening technology, which results in a limited access to credit for some firms. We show that a public development bank may alleviate the inefficiencies by lending to commercial banks at subsidized rates, targeting the firms that generate high added value. This may be implemented through subsidized ear-marked lending to the banks or through credit guarantees which we show to be equivalent in "normal times". Still, when banks are facing a liquidity shortage, lending is preferred, while when banks are undercapitalized, a credit guarantees program is best suited. This will imply that 1) there is no "one size fits all" intervention program and 2) that any intervention program should be fine-tuned to accommodate the characteristics of competition, collateral, liquidity and banks capitalization of each industry.

Paraules clau:

Public development banks; governmental loans and guarantees; costly screening; credit rationing.

Codis JEL:

H81, G20, G21, G23

Àrea de Recerca:

Finances i Comptabilitat

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