The goal achievement of federal lending programs

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Matthias G Raith
Department of Economics and Management, Otto-von-Guericke University, Magdeburg, Germany

Thorsten Staak
Department of Economics and Management, Otto-von-Guericke University, Magdeburg, Germany

Christoph Starke
Department of Economics and Management, Otto-von-Guericke University, Magdeburg, Germany

PP: 043 - 057

Abstract

Governmental intervention in credit markets typically involves the allocation of credit in the light of market failures. In this paper, we evaluate federal lending programs while presuming positive externalities and symmetrically informed market participants.

For common objectives of governmental lending institutions we verify that optimal lending structures require the application of the gap-lending principle.

We also show that lending programs can never be self-financing, due to the positive subsidy margin. Within this general framework, we contrast the policies of the US SBA and the German KfW then show that neither institution features an optimal lending structure.

Keywords

federal lending structures; subsidiarity principle; gap-lending principle; Small Business Administration (SBA); Kreditanstalt für Wiederaufbau (KfW)

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