This paper sets forth a new approach to state-owned banks grounded on portfolio theory and the principle of subsidiarity, so as to improve the governance of such institutions. Firstly, it defines what is meant by portfolio of portfolios and the separation feature, which leads to setting up what we call a separation compact. Next, the principle of subsidiarity is introduced, highlighting the pathways to its uses and misuses when we deal with state-owned banks. Afterwards, we bring forward the notion of subsidiarity portfolio, stressing how such construct can foster to a great degree key governance variables, namely accountability, control, transparency, management, checks and balances, as well as the fulfillment of the fiduciary role. Finally, it is laid down a new viewpoint for state-owned banks, from which they come to be regarded as separation compacts.
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Find related papers by JEL classification: H10 - Public Economics - - Structure and Scope of Government - - - General H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General H5 - Public Economics - - National Government Expenditures and Related Policies G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
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