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Submitted by Yueqing Jia on
The academic literature has extensively discussed about this issue in terms of profitability and efficiency of the SOBs. While from the macro-economic point of view, the question is that does credits from SOBs work good as a countercyclical policy instrument and promote a sustainable and stable long term growth? People may put their votes in favor of SOBs based on the experience of China, the country on top of the ranking of both share of SOBs and economic growth during the crisis. But China is facing serious inflation risk now due to the unconstrained credit issuances by the SOBs as policy instrument during the crisis. It would be interesting to check the correlation of the business cycles of developing countries with the credit issued by the SOBs. I won't be surprised of seeing large overshooting effects to the cycles by SOB credits, which may produce if not larger fluctuations in the long run. I would agree with Mr. Schmitz, that SOBs may not be a reliable solution for crisis management. An appropriate regulation framework and financial institutes running under market force would be more fundamental. Of course, what is an appropriate or optimal regulation framework is another hard question for development finance economists.