Public development banks and credit market imperfections

Which projects/firms should be the target of lending by a Public Development Bank (PDB)? What is the optimal design for the PDB's loans, and the optimal structure for delivering them? We analyze these questions in the context of a model where screening is costly to banks and underprovision of c...

Full description

Autores:
Eslava Mejía, Marcela
Freixas, Xavier
Tipo de recurso:
Work document
Fecha de publicación:
2016
Institución:
Universidad de los Andes
Repositorio:
Séneca: repositorio Uniandes
Idioma:
eng
OAI Identifier:
oai:repositorio.uniandes.edu.co:1992/8627
Acceso en línea:
http://hdl.handle.net/1992/8627
Palabra clave:
Public development banks
Governmental loans and guarantees
Costly screening
Credit rationing
Bancos de desarrollo
Préstamos gubernamentales
Finanzas
Mercado financiero
H81, G20, G21, G23
Rights
openAccess
License
http://creativecommons.org/licenses/by-nc-nd/4.0/
Description
Summary:Which projects/firms should be the target of lending by a Public Development Bank (PDB)? What is the optimal design for the PDB's loans, and the optimal structure for delivering them? We analyze these questions in the context of a model where screening is costly to banks and underprovision of credit results from the inability of banks to appropriate the full benefits of projects they finance, more pronounced for high value projects. PDB intervention arises as a natural alternative to alleviate this inefficiency, since it originates in a failure in the private provision of credit. Lending to commercial banks at subsidized rates or providing credit guarantees, targeting the firms that generate high added value, are valid policy alternatives. Though in normal times PDB lending and credit guarantees are shown to be equivalent, lending is preferred when banks are facing a liquidity shortage, while a credit guarantees program is preferred when banks are undercapitalized...