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This chapter analyzes the sources, magnitude, and means of financing investments in public and private enterprises after the Korean War. The analysis considers the credit policies relative to economic sectors (e.g., industry, mining, trade, and agriculture); industrial sectors (e.g., social overhead capital and manufacturing); the nature of investment (e.g., “entrepreneurial”, capital-, and technological-intensities in industries, the scale of business), and loan terms. This chapter also evaluates the criteria used to allocate loans, as well as the sources of financial resources obtained by the domestic lending institutions. The government interest rate policy is also examined.

This chapter examines the mobilization of the savings/resources of both foreign and domestic sources for investment in both the public and private sectors. The foreign sources of resources/savings examined are foreign direct investment, Japanese government grants, and foreign loans, which were largely supplied by Japan, in addition to the savings of both the Japanese and Koreans in Korea. The domestic savings examined are the sources of owners' equity and loans of financial institutions, which may be traced to the savings of both Japanese and Koreans. These have increased over time partly due to the enforcement of the government savings policy. The credit policies of the financial institutions are examined, which directed the mobilized savings to certain targeted industries under the government's guidance. Other facets of mobilization of savings for investment analyzed include: Who supplied the most resources/savings for investment, and to what extent? Who were the borrowers and in what sectors? What were the terms of loans? Who financed them? These analyses may provide insight to capital formation and motives for financing investment in Korea.

In this chapter, we discuss trade receivables and credit risk. We begin by providing a brief review of the main theories of trade credit. Next, we consider the credit risk embedded in firms' investment in trade receivables, and discuss how to correctly assess and manage the credit risk inherent in clients' trade credit. We continue by presenting several tools that can help creditors mitigate the effects of clients' defaults. Then, we focus on alternative mechanisms that allow firms to specifically finance their investment in clients, namely, factoring and the issuance of collateralized debt. Finally, we briefly review how trade credit can be measured.

Although avoiding the policy mistakes of the 1930s helped define how policy makers responded to the 2007–08 financial crisis and ensuing recession, policy applications to the recovery phase are less well understood. This chapter draws on the experience of the US in the 1930s to shed light on exit strategies—movements back to institutional conditions associated with steady growth—including stable inflation and broadly non-interventionist credit- and capital-market policies. We describe how policy responses to the deflation and the banking crises of the 1930s coloured the exit policy debate after the Great Depression. We show that a full exit from the Great Depression did not occur in the 1930s. It took until the 1950s for this to occur and for the Federal Reserve to regain its independence and return unfettered to its longer-run objectives.

In this chapter, we take the buyer's perspective and focus on the financing that suppliers extend to their clients. We emphasize that decisions on the use of trade credit financing are important for working capital management because they influence the size of the operating investment a firm needs to finance in the financial market. We show that, even though trade credit may be expensive, there are various reasons that explain its use. Finally, we discuss how trade credit should be measured and provide information about the differences in the use of trade credit across industries and over time.

This chapter assesses the expansion of credit programs in the New Deal, showing that it was the key moment when credit support came fully into its role as a multipurpose tool of statecraft. The New Deal credit programs mattered because they helped a fractured political system continue to function. Their appeal rested in how credit programs circumvented the nation's deepest, most intractable fissures. Credit programs allowed government officials to promote specific markets without meeting the various demands of central planning. They could be justified on many grounds and framed as consistent with free-market ideals. Equally important, they could be removed from the budget. The latter characteristic did not please the most stalwart of fiscal conservatives, but it did create more options for maneuvering around them. The chapter then considers how the Reconstruction Finance Corporation—the financial giant that funded much of the New Deal—and the housing programs served as the institutional centers for the development of U.S. credit policy.

This chapter discusses how, in the 1970s and 1980s, Norges Bank began to develop instruments with a view to steering economic policy under freer market conditions. However, governments of changing political hues were unwilling to let go of the low interest rate. The oil price fall in 1986 brought an abrupt change in interest rate and credit policy. The government’s tightening actions included the introduction of a more binding fixed exchange rate policy. The frequent recourse to corrective devaluations was to be a thing of the past. Hence, there was a justification for using the interest rate as an ongoing instrument to stabilize the exchange rate. This task fell to Norges Bank. The transition to an independent, active interest rate policy on the part of the central bank was abrupt and came as a surprise. Barely a year before the collapse of the oil price, the Storting had passed a law that made Norges Bank one of the least autonomous central banks in all of western Europe. Ultimately, it was the external situation, and in no sense an increase in government’s and the public’s recognition of the bank and its institutional legitimacy, that restored greater operative autonomy to Norges Bank.

This chapter explores the emergence of ‘credit policy’, which more or less completely replaced ‘monetary policy’ as a key concept among experts and politicians. The term implied a shift in focus from aggregates that had previously been at the core of central bank activity—money, liquidity, and interest rates, as a means to control inflation and output—to loans facilitating specific types of economic activities. Credit policy mainly became a process for regulating aggregate lending and allocating the credit to various sectors of the economy. When starting to conduct credit policies, the authorities needed both a formal and informal system for regulating and allocation of loans, and some principles for prioritizing between potential credit customers. Both challenges came to engage government ministries, while Norges Bank sought to find a role in the implementation and management of the emerging system. In practice, Norges Bank became the government’s bank, as part of its key policy apparatus. The central bank governor, Gunnar Jahn, wanted another policy and a freer role but adapted to the new reality that was forced upon Norges Bank. When he stepped down in 1954, Norges Bank was among the least influential of the central banks in western Europe.

This chapter develops a model of vertical linkage between the formal and informal credit markets which highlights the presence of corruption in the distribution of formal credit. The existing moneylender, the bank official, and the new moneylenders move sequentially, while the existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate. The analysis distinguishes between two different ways of designing a credit subsidy policy. If a credit subsidy policy is undertaken through an increase in the supply of institutional credit, it is likely to increase the competitiveness in the informal credit market and lower the informal sector interest rate under reasonable parametric restrictions. Any change in the formal sector interest rate has no effect. However, an anticorruption measure (increase in penalty) unambiguously lowers the interest rate in the informal credit market. Finally, the chapter examines the effects of alternative policies on the incomes of different economic agents in our model.

This chapter examines rural credit in China, based on surveys conducted in the western and central provinces of Gansu, Shaanxi, and Henan between 2007 and 2010. It discusses the credit conditions of farm households, the role of credit policy, and rural credit reforms. It concludes that while an artificial ceiling on agricultural loans is often viewed as an implicit subsidy for farmers, care must be taken with this interpretation. The surveys show that the ceiling of 15.088 per cent is not binding in the sense that at that rate of interest the demand for credit is virtually zero.

This chapter discusses Federal Reserve support of the Treasury market during World War I, which was founded on two statutory credit facilities: the original power of the Reserve Banks to discount, or purchase, loans made by member banks to their customers; and the subsequently added power of the Reserve Banks to lend to member banks. Reserve Bank discounts were limited to short-term loans “arising out of actual commercial transactions” and short-term loans to purchase or carry Treasury securities.

Business cycles are the effects of inflationary and deflationary credit policy by banks. When the interest rate decreases below its natural level a credit expansion is triggered and the business cycle gathers momentum: prices increase during the upswing and generate extra profits. This provides an incentive to expand production causing further credit expansion. Eventually this incentive is exhausted and the credit is not expanded further; prices also remain stable at this stage. Banks expect ever-increasing prices and set interest rates accordingly and act restrictively when these expected price rises do not materialise. The resulting credit contraction causes prices to fall leading to further credit contractions. The price decreases further until the depressing forces are exhausted and the business cycle reaches its low. The economy recovers from this position again and a new cycle begins.

This chapter focuses on green finance, which refers to a series of measures initiated by the Ministry of Environmental Protection (MEP) to force compliance or control in the most environmentally damaging industrial sectors. This is achieved by leveraging a company's need for finance. The discussions cover the “green credit” policy, which governs bank loans to enterprises in violation of environmental law; and the “green trade” policy, which seeks to discourage the manufacturing of heavily polluting products for export.

This chapter explores the future of banking in a digital fiat currency (‘DFC’) regime, defined as a monetary regime in which retail and wholesale consumers have direct access to public digital checking and payments services, independent of the existing bank-centric depository system. I argue that in such a regime, existing banks will continue to perform the valuable social function of underwriting loans and evaluating collateral, even as their checking and payments processing functions will be rendered obsolete. Such a system would improve payments system resiliency, while addressing the safe asset shortage issues associated with insurance caps on bank deposit accounts. At the same time, a DFC regime would necessarily clarify the public nature of the existing credit system, wherein commercial banks are (inherently) entrusted to underwrite loans and subjectively evaluate collateral. Thus, digital fiat currency technology represents more than a mere improvement in payment system efficiency—it has the potential to transform the banking industry, simplify financial regulation, and recast our collective understanding of how money and banking work in the modern economy.