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The Maturity Lengthening Role of National Development Banks

2019-05-31

Content introduction:

No. E2019006

The Maturity Lengthening Role of National Development Banks

Alfredo Schclarek   Jiajun Xu   Jianye Yan

May 2019 ​

 

Abstract:

This paper theoretically studies the optimal determination of the maturity of lending to firms (investors) by commercial banks (CBs) and national development banks (NDBs). Our main result proves that NDBs provide longer-term lending to firms (investors) in comparison to CBs. The reason is that NDB bonds have more value than the bonds issued by CBs (or the value of interbank lending to CBs), thus allowing banks to better cope with liquidity problems in case of needing to make interbank payments. NDB bonds have a higher value because NDBs are owned by the government, hence there is a higher recapitalization willingness and capacity compared to private bank owners. Regarding the maturity lengthening role of NDBs, this is positively related to the debt or collateral capacity of their lending to real investment projects (or the creditworthiness of the firms), the recapitalization willingness (or perceived willingness) and financial capacity of the government, and their liquid asset holdings.

 

JEL classification: G01; G21; G28; H81; E51; E44 

 

Keywords: 

Maturity lengthening; Bank lending; Debt or collateral capacity; Asset-based leverage; Interbank market; Recapitalization; National development banks.

 

 

The series of New Structural Economics Working Papers aims to encourage academic scholars and students from all over the world to conduct academic research in the field of new structural economics. Excellent papers are selected irregularly and are offered academic suggestions and recommendation, but the published working papers are not intended to represent official communication from INSE.

The Present Paper was approved by the C3 Development Financing Group.