Burning money? Government lending in a credit crunch

Jiménez, Gabriel; Peydró, José-Luis; Repullo, Rafael; Saurina, Jesús

Burning money? Government lending in a credit crunch

Citation

Jiménez, G, Peydró, J, Repullo, R, Saurina, J. Burning money? Government lending in a credit crunch. 2019. handle: http://hdl.handle.net/10230/37103

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Abstract

We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.