A model of bank lending in the global financial crisis and the case of Korea

► We model whether state-owned banks offset private bank credit declines in the financial crisis. ► In the model, banks face adverse selection, regulatory costs, wholesale and traditional funding. ► Empirical tests show public banks offset procyclical private credit contraction. ► Wholesale funding is a short-term alternative that helped fund lending in the crisis. ► Wholesale funding does not appear to drive deteriorating credit conditions in Korea.