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policy briefs on the crisis—assessing the policy responses, shedding light on financial reforms currently under debate, and providing insights for emerging-market policy makers. The need to k ick-star t lending to the rea l sector in response to the g loba l f inanc ia l cr i s i s i s leading many countr ies to expand the role of state-owned f inanc ia l inst itut ions. The ef fect iveness of the support by these inst itut ions depends in large par t on the nature of the shock, on their abi l ity to leverage pr ivate commerc ia l banks to sca le up their impact, and on the existence of a sound inst itut iona l f ramework. Whi le it i s too ear ly to eva luate their ef fect iveness, past exper ience with the use of such inst itut ions i s sober ing. Whether countr ies wi l l heed the lessons of th is exper ience remains to be seen. Commercial banks in several countries have been severely affected by the global financial crisis and are seeking to raise new capital and shrink their balance sheets. Internationally active banks are reducing their cross-border exposure and retreating to core markets as part of this deleveraging process and in response to increased risk aversion. At the same time there has been a severe contraction of aggregate demand as households and companies attempt to cut back on spending and investment. All these factors have combined to slow the growth—and even reduce the level—of bank lending in many economies. In response to the perceived credit crunch, authorities in many countries have taken mea-sures to kick-start lending, including through the use of state financial institutions. Governments in both developed and emerging economies have used their state financial institutions to support lending in specific sectors, such as for trade finance and for small and medium-size enterprise loans (box 1). While some govern-ments have not provided additional funding explicitly for this purpose, others have com