Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

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Bank Ownership, Lending, and Local Economic Performance During the 2008-2010 Financial Crisis

Nicholas Coleman, Leo Feler*

Last modified: 2012-08-09


In September 2008, after Lehman Brothers’ collapse, private banks sharply reduced their lending.  In the U.S., this reduction translated into a recession and higher unemployment.  In Brazil, despite a similar supply-side reduction in lending by private and especially foreign-funded banks, recessionary effects were comparatively minimal and short-lived.  This paper analyzes the role of Brazil’s government-owned banks in mitigating a national recession by providing more credit to offset the decline in lending by private banks.  Localities in Brazil with a high share of government banks experienced a relative increase in lending following the onset of the 2008-2010 financial crisis compared to areas with a low share of these banks.  Areas with a high share of government banks correspondingly experienced a relative increase of approximately 2.3%-4.1% in GDP and 1.8%-2.6% in labor hours and income.  Overall, increased lending by government banks in Brazil propped-up GDP and buttressed workers’ labor hours and income.

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