Article

A Reappraisal of State-Owned Banks

Economia 01/2007; 7(2). DOI: 10.1353/eco.2007.0015
Source: RePEc

ABSTRACT

We revisit the public banks debate, survey the theoretical arguments and test the robustness (and expand) the existing empirical evidence. While we find some support for the view that public banks do not allocate credit optimally, we also report indicative evidence that they exert a positive influence on private bank efficiency, and may contribute to reduce credit procyclicality. Ultimately, we find that the recent criticism to public banks has generally been based on inconclusive cross-country evidence. More specific bank-level research is still needed to substantiate a case for or against public banks in developing economies.

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    • ", estimates suggest that in advanced economies state banks controlled 40 per cent of the largest banks' combined assets and 65 per cent in developing economies (Levy Yeyati et al. 2007, 212). Only in the most creative ways could it be upheld that these varied and widespread instances of state-owned banking all succumb to simply filling in where private banks ought to have been. "
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    ABSTRACT: Thirty years of neoliberal restructuring have side-lined alternative nancing practices, and propagated mainstream myths about state-owned banks. This paper examines these neoliberal claims, arguing instead that state-owned banks can remain a crucial part of progressive, sustainable and democratic strategies for investments in long-term development and infrastructure. Drawing on past and present case studies, as well as theoretical literature on nance, the paper points to the potential to revive – and improve – state-owned banking as a viable option for financing development. To this end the chapter dispels nine popular neoliberal claims about state-owned banks while discussing how state-owned banks have undergone neoliberal restructuring processes such as marketization and corporatization in ways that nonetheless challenge their status as ‘public’ banks. To illustrate, the chapter looks at imperfect, but telling or inspiring examples from Brazil, China, Costa Rica, India, South Africa, Turkey and Venezuela, among others.
    Full-text · Chapter · Jan 2016
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    • "Public banks are viewed as a mechanism to maximize social welfare (Banerjee, 1997). Banks controlled by State must adopt a more active strategy when the frequency of market failures is high in certain sectors; they may focus on those linked with external funding, information asymmetries, intangible assets and substantial spillovers (Levy Yayeti et al., 2007).State owned banks are less profitable because they maximize broader social objectives. "

    Full-text · Article · Feb 2015
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    • "The causality may also move in the opposite direction, as a growing economy also generates a higher demand for credit. In the absence of functioning financial markets, credit and economic growth may even be causally 1 Theoretical arguments supporting a positive finance-growth nexus draw on a broad theoretical literature interpreting government-owned banks as a convenient tool to spur economic development and alleviate poverty (Banerjee, 2003; Burgess and Pande, 2003) by channeling household savings into productive investments (Gerschenkron, 1962; Stiglitz, 1994; Hausman and Rodrik, 2003; Adrianova et al., 2008), lower interest rate risks and greater financial stability (Demirguç-Kunt and Detragiache, 1998; Reinhart and Kaminsky, 1999), an absence of excessive risk taking by bank managers (Akerlof and Romer, 1993; Demirguç-Kunt and Detragiache, 1998), and an increased effectiveness of monetary policy instruments, such as expansive measures to push the economy out of a recession (Micco and Panizza, 2006; Yeyati et al., 2007). administered by the same government, and characterized by shared historical roots, language, and cultural values. "
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    ABSTRACT: Whether state-owned banks are growth promoting or not is highly contested given the assumed disincentives associated with public ownership. Bank efficiency, however, does not only depend on distinct ownership regimes, but also on the bank’s main functions, lending strategies and market competition. This paper provides a first comparative analysis of different types of publicly owned banks operating in China between the year 1997 and 2008. Using principal component analysis and Granger-causality tests, this study shows that China’s state-owned commercial banks, and rural credit cooperatives did not promote GDP-growth during the observation period. State-owned commercial banks even had a negative growth effect on the manufacturing sector. By contrast, state policy banks and joint stock commercial bank did in fact promote domestic growth. China’s experience suggests a more nuanced account of state-banking looking beyond the role of ownership, to incorporate functional and institutional differences.
    Full-text · Article · Jul 2013
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