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Direct State Interventions in Credit Markets: When Are They Justified?

January 18, 2012


César Calderón, Senior Economist, FPDCE
María Soledad Martínez Pería, Lead Economist, DECFP
Eva M. Gutiérrez, Senior Financial Sector Specialist, LCSPF
Carlos Leonardo Vicente, Financial Sector Specialist, FFSDR


Heinz Rudolph, Senior Financial Sector Specialist, FCMNB


Asli Demirgüç-Kunt, Director, DECVP & Chief Economist, FPD


Direct State Interventions In Credit Markets: When are they justified?             January 25, 2012


This is the fourth in a series of seminars related to the 2013 Global Financial Development Report (GFDR).  The objective of the GFDR seminars is to present preliminary findings from the studies underlying the 2013 GFDR, and to get early informal feedback.  For presentations from past GFDR seminars, and for a list of planned GFDR seminars, see

This seminar will tackle the following questions:

Why does this topic matter?  The financial crisis has re-ignited the debate on whether/when there is a need for direct intervention in the financial sector.  As balance sheets of private banks deteriorated and they curtailed lending, government-owned banks in many countries stepped up in their efforts to finance the private sector. Other countries relied on unconventional monetary and fiscal measures to try to boost credit and support the real economy during crisis —for instance, expanding and altering the asset composition of the balance sheet of their central banks. For the Bank’s policy advice, it is important to examine and distill lessons from the experience with such interventions.

When should governments intervene in credit markets? The GFDR team will discuss the merits of government bank ownership by comparing the evidence regarding the counter-cyclical nature of government bank lending vis-à-vis the potential long-run implications of government ownership. In addition, they will discuss the benefits of using alternative government policies that do not involve the actions of public banks to support the real economy when crises hit.  The team will present and review new evidence that relies on wide cross-country data, as well as on selected case studies.  Preliminary findings suggest that the evidence is still far from conclusive on the performance of government-owned banks in mitigating large credit contractions and that these stabilization efforts may come at the cost of lower intermediation quality and resource misallocation.

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