Government Loan Guarantees and the Credit Decision‐Making Structure

19 Pages Posted: 7 May 2018

See all articles by Ruth Ben‐Yashar

Ruth Ben‐Yashar

Bar Ilan University

Miriam Krausz

Bar-Ilan University - Department of Economics

Shmuel Nitzan

Bar-Ilan University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2018

Abstract

English Abstract: Governments can alleviate the problem of banks denying credit to high risk borrowers and excluding weaker sectors from borrowing by introducing state‐guaranteed loan programs. The main contribution of this paper is the elucidation of the importance of the bank's credit decision‐making structure in ensuring overall effectiveness of loan guarantees. In particular, the government can use the guarantee as an instrument for credit inducement and for affecting the bank's decision‐making system, i.e., its degree of centralization, bias towards approval of loans and reliance on objective loan‐specific information.

French Abstract: Les garanties gouvernementales de prêts et la structure de la prise de décision en ce qui a trait au crédit. Les gouvernements peuvent soulager le problème des banques qui refusent de faire crédit à des emprunteurs à hauts risques et excluent certains secteurs plus faibles d’accès au crédit, en introduisant des programmes de garantie de prêts. La contribution centrale de ce mémoire est l’élucidation de l’importance de la structure de prise de décision des banques en ce qui a trait au crédit pour assurer l’efficacité des garanties de prêts. En particulier, le gouvernement peut utiliser la garantie comme instrument d’incitation au crédit et pour influencer le système de prise de décision des banques, i.e., le degré de centralisation, la tendance à approuver les prêts, le recours à de l’information objective et spécifique au prêt.

Suggested Citation

Ben‐Yashar, Ruth and Krausz, Miriam and Nitzan, Shmuel, Government Loan Guarantees and the Credit Decision‐Making Structure (May 2018). Canadian Journal of Economics/Revue canadienne d'économique, Vol. 51, Issue 2, pp. 607-625, 2018, Available at SSRN: https://ssrn.com/abstract=3173357 or http://dx.doi.org/10.1111/caje.12332

Ruth Ben‐Yashar (Contact Author)

Bar Ilan University

Ramat Gan
5290002
Israel

Miriam Krausz

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+97 23 531 7220 (Phone)
+97 23 531 3180 (Fax)

Shmuel Nitzan

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972.3.531.8930 (Phone)
+972.3.535.3180 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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