State-Run Banks, Money Growth, and the Real Economy

We find lending by state controlled banks to be significantly more associated with monetary policy than is lending by private sector banks. At the country-level, we further find monetary policy to be significantly closely linked to aggregate loan growth and aggregate fixed capital investment growth in countries whose large banks are more predominantly state controlled. These differences are more pronounced during monetary expansions amid slow GDP growth periods. Other factors, such as small bank size and the presence of a controlling shareholder in a private sector bank also correlate with more lending sensitivity to monetary policy.