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Impact of a Change in Government Loan Interest Rateson Ratesand Amount of LoansExtended by Other Banks

Author

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  • Uesugi, Iichiro
  • Uchida, Hirofumi
  • Iwaki, Hiromichi

Abstract

Public sector holds about 40 percent of the assets that the banking sector around the globe owns, and policies to provide funds through financial institutions that governments owns have huge influence on flow of funds to and from firms and households. In Japan, government-affiliated financial institutions have been criticized as putting pressure on private banks because their borrowers overlap. Focusing on loans to smalland medium-sized enterprises（SMEs）, this paper examines differences in the loan interest rates between the SME unit of the Japan Financial Corporation（JFC-SME, formerly Japan Finance Corporation for Small and Medium Enterprise）, one of the government-affiliated financial institutions in Japan, and other banks. It also examines the existence of substitution between JFC-SME loans and those extended by other banks. Our findings are threefold :（1）The mean and the median of loan interest rates of JFC-SME are lower than those of other banks;（2）An institutional change to lower interest rates for higher-rated borrowers of JFC-SME is not followed by a subsequent decrease in loan interest rates of other banks; and（3）Although an increase in the amount of loans from JFC-SME to higher-rated firms is larger than that to lower-rated firms because of the decrease in the interest rate for the former, this is the case also for loans from other banks, and thus the dependence of higher-rated firms on loans from JFC-SME does not increase due to the institutional change.

Suggested Citation

  • Uesugi, Iichiro & Uchida, Hirofumi & Iwaki, Hiromichi, 2020. "Impact of a Change in Government Loan Interest Rateson Ratesand Amount of LoansExtended by Other Banks," Economic Review, Hitotsubashi University, vol. 71(4), pages 333-357, October.
    • Handle: RePEc:hit:ecorev:v:71:y:2020:i:4:p:333-357
    DOI: 10.15057/70080
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    Citations

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    Cited by:

    1. Honda, Tomohito & Hosono, Kaoru & Miyakawa, Daisuke & Ono, Arito & Uesugi, Iichiro, 2023. "Determinants and effects of the use of COVID-19 business support programs in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    2. HONDA Tomohito & HOSONO Kaoru & MIYAKAWA Daisuke & ONO Arito & UESUGI Iichiro, 2024. "Imperfect Take-up of COVID-19 Business Support Programs," Discussion papers 24001, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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