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Government loan guarantees and the credit decision-making structure

Author

Listed:
  • Ruth Ben-Yashar
  • Miriam Krausz
  • Shmuel Nitzan

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.

Suggested Citation

  • Ruth Ben-Yashar & Miriam Krausz & Shmuel Nitzan, 2018. "Government loan guarantees and the credit decision-making structure," Canadian Journal of Economics, Canadian Economics Association, vol. 51(2), pages 607-625, May.
    • Handle: RePEc:cje:issued:v:51:y:2018:i:2:p:607-625
    DOI: 10.1111/caje.12332
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    Cited by:

    1. Ruth Ben-Yashar & Miriam Krausz & Shmuel Nitzan, 2018. "The effect of democratic decision-making on investment in reputation," Public Choice, Springer, vol. 177(1), pages 155-164, October.

    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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