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

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12 Citations (Scopus)

Abstract

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
Volume89
DOIs
Publication statusPublished - 2018 Apr

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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