Publication: Winners and Losers When Private Banks Distribute Government Loans: Evidence from Earmarked Credit in Brazil
Date
2019-07
ISSN
Published
2019-07
Author(s)
Ornelas, Jose Renato Haas
Pedraza, Alvaro
Ruiz-Ortega, Claudia
Silva, Thiago Christiano
Abstract
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.
Citation
“Ornelas, Jose Renato Haas; Pedraza, Alvaro; Ruiz-Ortega, Claudia; Silva, Thiago Christiano. 2019. Winners and Losers When Private Banks Distribute Government Loans; Locking-In Firms: Loan Conditions in the Presence of Government-Driven Credit : Evidence from Earmarked Credit in Brazil. Policy Research Working Paper;No. 8952. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/32153 License: CC BY 3.0 IGO.”
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