The Maturity Lengthening Role of National Development Banks

ALFREDO SCHCLAREK; JIAJUN XU

San Martin

Conferencia; Quinta Edición de Semana de la Investigación, el Desarrollo y la Innovación; 2020

UNSAM

We analyse why national development banks (NDBs) may provide longer-term lending to firms than commercial banks. Our baseline model is that commercial banks (CBs) suffer from mismatch between loans to firms and deposits, and, thus, they face liquidity risks, which may require them to issue bonds backed by their assets. Our model links the maturity of bank loans with the collateral value of bank bonds. Then we introduce NDBs to the banking system where NDBs issue bonds to be purchased by CBs. NDBs enjoy higher recapitalization willingness and capacity by the state and hence greater collateral value for their bonds than private commercial banks (PCBs). Also, if the relative size of the NDB bond issuance is larger, then the market liquidity of these NDB bonds may be higher, which increases the collateral value for their bonds. Yet poorer monitoring skills and quality of NDBs may undermine the collateral value for their bonds and diminish their advantages over PCBs. Our study implies that NDBs are not substitutes for but complements to CBs.