The objective function of government-controlled banks in a financial crisis

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    9 Citations (Scopus)


    We present evidence that government-controlled banks (GCBs) significantly increased their lending to small and medium-sized enterprises (SMEs) whose main bank was a large bank in the 2008–09 financial crisis. Further analyses show that the weak relationship between large banks and SMEs is a major cause for this phenomenon. The mixed Cournot oligopoly model with relationship banking, where profit-maximizing private banks and a welfare-maximizing GCB coexist, shows that this finding is consistent with the welfare maximization by a GCB rather than its own profit maximization.

    Original languageEnglish
    Pages (from-to)78-93
    Number of pages16
    JournalJournal of Banking and Finance
    Publication statusPublished - 2018 Apr 1


    • Government-controlled banks
    • Mixed oligopoly
    • Relationship banking
    • Small business financing

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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