Investigating the Determinants of Banking Credit to Government in OECD Countries

This study investigates the factors shaping the evolution of banking credit provided to the government using a sample of 34 OECD countries during the 2004 to 2020 period.The primary focus of the paper is to examine the dynamics of government credit provided by commercial banks in connection with various bank-related factors.The estimates reveal a positive association between the size of the banking system, and the dependent variable.Furthermore, we reveal a positive impact coefficient between credit-to-deposits ratio and the level of banking loans provided to government.Conversely, a negative coefficient linked the Return-on-Assets to the dependent variable suggesting that less profitable banks may hesitate in providing government credit, with potential implications for banking sector stability.Interestingly, lending to the public sector is not substantially impacted by the concentration of banks assets.With implications for analysts and politicians, these findings add to a more sophisticated understanding of the complex interaction between commercial banks and the government.