Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil
This paper studies loan conditions in a context where private banks can operate in two credit markets: a free-market with no government intervention and an earmarked market that relies on government funds and where interest rates are regulated. The...
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/148531564513434960/Locking-in-Firms-Loan-Conditions-in-the-Presence-of-Government-Driven-Credit http://hdl.handle.net/10986/32153 |
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okr-10986-321532022-09-05T00:23:29Z Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil Ornelas, Jose Renato Haas Pedraza, Alvaro Ruiz-Ortega, Claudia Silva, Thiago Christiano MARKET POWER DIRECTED LENDING PRICING STRATEGY BANKING SYSTEM GOVERNMENT INTERVENTION SECOND-TIER LENDING GOVERNMENT CREDIT PROGRAM CREDIT RISK CROSS-SELLING STRATEGY This paper studies loan conditions in a context where private banks can operate in two credit markets: a free-market with no government intervention and an earmarked market that relies on government funds and where interest rates are regulated. The paper examines the effects of earmarked lending on the spreads of free-market loans using a rich loan-level dataset on all Brazilian firms between 2005 and 2016. The evidence suggests that private banks strategically channel earmarked credit to firms that are ex ante more difficult to lock-in in the free-market– larger firms in more contested regions. The paper highlights a novel channel whereby earmarked credit is used by private banks to extract more rents. Once a firm receives an earmarked credit from its bank, its interest rates on new loans in the free-market increase while the loan volume remains mostly unaffected. 2019-08-01T21:32:50Z 2019-08-01T21:32:50Z 2019-07 Working Paper http://documents.worldbank.org/curated/en/148531564513434960/Locking-in-Firms-Loan-Conditions-in-the-Presence-of-Government-Driven-Credit http://hdl.handle.net/10986/32153 English Policy Research Working Paper;No. 8952 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Brazil |
| repository_type |
Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
MARKET POWER DIRECTED LENDING PRICING STRATEGY BANKING SYSTEM GOVERNMENT INTERVENTION SECOND-TIER LENDING GOVERNMENT CREDIT PROGRAM CREDIT RISK CROSS-SELLING STRATEGY |
| spellingShingle |
MARKET POWER DIRECTED LENDING PRICING STRATEGY BANKING SYSTEM GOVERNMENT INTERVENTION SECOND-TIER LENDING GOVERNMENT CREDIT PROGRAM CREDIT RISK CROSS-SELLING STRATEGY Ornelas, Jose Renato Haas Pedraza, Alvaro Ruiz-Ortega, Claudia Silva, Thiago Christiano Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil |
| geographic_facet |
Latin America & Caribbean Brazil |
| relation |
Policy Research Working Paper;No. 8952 |
| description |
This paper studies loan conditions in a
context where private banks can operate in two credit
markets: a free-market with no government intervention and
an earmarked market that relies on government funds and
where interest rates are regulated. The paper examines the
effects of earmarked lending on the spreads of free-market
loans using a rich loan-level dataset on all Brazilian firms
between 2005 and 2016. The evidence suggests that private
banks strategically channel earmarked credit to firms that
are ex ante more difficult to lock-in in the free-market–
larger firms in more contested regions. The paper highlights
a novel channel whereby earmarked credit is used by private
banks to extract more rents. Once a firm receives an
earmarked credit from its bank, its interest rates on new
loans in the free-market increase while the loan volume
remains mostly unaffected. |
| format |
Working Paper |
| author |
Ornelas, Jose Renato Haas Pedraza, Alvaro Ruiz-Ortega, Claudia Silva, Thiago Christiano |
| author_facet |
Ornelas, Jose Renato Haas Pedraza, Alvaro Ruiz-Ortega, Claudia Silva, Thiago Christiano |
| author_sort |
Ornelas, Jose Renato Haas |
| title |
Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil |
| title_short |
Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil |
| title_full |
Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil |
| title_fullStr |
Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil |
| title_full_unstemmed |
Winners and Losers When Private Banks Distribute Government Loans : Evidence from Earmarked Credit in Brazil |
| title_sort |
winners and losers when private banks distribute government loans : evidence from earmarked credit in brazil |
| publisher |
World Bank, Washington, DC |
| publishDate |
2019 |
| url |
http://documents.worldbank.org/curated/en/148531564513434960/Locking-in-Firms-Loan-Conditions-in-the-Presence-of-Government-Driven-Credit http://hdl.handle.net/10986/32153 |
| _version_ |
1764475909236064256 |