Study On The Behavior Of Banks Loan To The Government Financing Platforms Under Soft Budget Constraint

Concerned with the institutional background of soft budget constraints, this paper focuses on the role of commercial banks in China as budget supporters to local government financing platforms. The game model in this paper is established based on the classical SBC model of Dewatripont and Maskin(1995), then combines with the Chinese economic reality to make expansion and transformation to the basic model. Through the establishment of game model of local banks, local government financing platforms, as well as the construction of banks’ objective function, this paper explores the current Chinese commercial banks’credit behaviors. There are two types of local government intervention, one is providing financial aid to the financing platform, the other is participanting in refinancing negotiations. This paper will analyze the optimum decision of bank under these two conditions.When the bank makes decision whether to refinance the slow project or not independently, this is a completely economic problem, depending on which can provide higher economic benefits. If refinancing enable the bank to obtain higher returns, the bank will provide credits and become the support organization of the financing platformt. Local government intervention will widen refinancing conditions and deepen the soft constrait of the financing platform. When the local government provide aid to the financing platform, the assistance will change the expected return on financing platform project. Local government intervention in refinancing negotiations can reduce the transaction cost caused by asymmetric information, increasing the probabelity of the financing platform to obtain refinancing, so that credit decentralization constraints on the budget become weaker.