The Countercyclical Behaviour of National Development Banks in Latin America and the Caribbean

Abstract

This chapter investigates the cyclical lending patterns of national development banks (NDBs), comparing their lending activity with that of public, foreign, and domestic private banks over the period of 1995–2014. It finds robust evidence that national development and public retail-oriented banks have counteracted the slowdown in the lending activity of private banks during crises by significantly increasing their provision of loans. This is particularly important when considering productive lending to the corporate sector. NDBs’ size, governance structure, and financial conditions are crucial in ensuring that the countercyclical response is effective in mitigating the macroeconomic effects of financial turmoil. In addition, it is important that special and innovative credit lines are designed in line with the specific needs of companies in times of crisis.