Related Lending and Banking Development
Does related lending have positive or negative effects on the development of banking systems? This paper analyzes a unique cross-country data set covering 74 countries from 1990 to 2007, and finds that related lending, on average, does not have any...
| Main Authors: | , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
|
| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110217083521 http://hdl.handle.net/10986/3337 |
| Summary: | Does related lending have positive or
negative effects on the development of banking systems? This
paper analyzes a unique cross-country data set covering 74
countries from 1990 to 2007, and finds that related lending,
on average, does not have any effect on the growth of
credit. The authors do find, however, that there are
conditional relationships: related lending tends to retard
the growth of banking systems when rule of law is weak,
while it tends to promote the growth of banking systems when
rule of law is strong. They also find that related lending
appears to be associated with looting when banks are owned
by non-financial firms, but that it does not when
non-financial firms are owned by banks. The results indicate
that whether related lending is positive or pernicious
depends critically on the institutional context in which it
takes place; there is no single "best policy"
regarding related lending. These findings are robust to
alternative specifications, including instrumental variable regressions. |
|---|