National goals, local gears: why institutional design and architecture, not mission statements, drive development finance

Purpose Public development banks (PDBs) have re-emerged as pivotal instruments for industrial policy, green transition and regional rebalancing. Yet the effectiveness of PDBs depends not only on mandates and resources but on the local banking architecture: how credit is originated, priced, monitored and transmitted to place. This is the purpose of this study. Design/methodology/approach This paper compares two centralised PDBs – the Bulgarian Development Bank and the British Business Bank – with Germany’s dense, decentralised savings and cooperative banking pillars (Sparkassen and Volksbanken–Raiffeisenbanken) supported by Kreditanstalt für Wiederaufbau. This paper shows that Bulgaria and the UK confront a scale-and-proximity constraint: small, national balance sheets delivering primarily via programs and intermediaries versus large, locally embedded networks practicing relationship lending in Germany. Findings “Like-for-like” comparisons to single German local banks underscore the point: individual cooperative or savings banks can match or exceed the balance-sheet size of national PDBs while serving compact regions. The analysis implies that market-shaping outcomes require decentralised, spatially rich banking architecture. Research limitations/implications The study assesses institutional capacity and credit-transmission architecture rather than realised borrower- or regional-level outcomes and therefore does not identify causal effects of decentralisation on economic performance. Cross-country differences in regulation, ownership and institutional history also constrain direct comparability, while documentary evidence captures formal structures more readily than informal lending practices. Future research should combine institutional analysis with borrower-, loan- or regional-level data and practitioner interviews to examine how functional distance, decision rights and relationship-lending capacity affect credit creation and developmental outcomes across different banking systems. Originality/value This paper concludes with policy options to restructure delivery, so limited national balance sheets yield outsized place-based effects.