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Should the Government Be in the Banking Business? The Role of State-Owned and Development Banks

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  • Eduardo Levy Yeyati
  • Alejandro Micco
  • Ugo Panizza

Abstract

This paper surveys the theoretical and empirical literature on the role of state-owned banks and also presents some new results and a robustness analysis. The paper shows that state-owned banks located in developing countries have fiscal costs because they are characterized by lower returns than comparable privately owned banks (on the other hand, there is no evidence that state-owned banks located in industrial countries are less profitable than their private counterparts). We then point out that this evidence cannot be used as an argument against the existence of state-owned banks, as this low profitability might stem from state-owned banks’ activity on projects characterized by low private sector investment and high social return. While we find no evidence that the presence of state-owned banks promotes economic growth or financial development, we also find that the evidence that state-owned banks lead to lower growth and financial development is not as strong as previously thought.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4379.

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Date of creation: Nov 2004
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Handle: RePEc:idb:wpaper:4379

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References

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  1. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
  2. Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
  3. Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
  4. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  5. Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, Elsevier, vol. 72(2), pages 357-384, May.
  6. Claessens, Stijn & Laeven, Luc, 2002. "Financial development, property rights, and growth," Policy Research Working Paper Series 2924, The World Bank.
  7. Asli Demirguc-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation," Econometric Society World Congress 2000 Contributed Papers 1751, Econometric Society.
  8. John P. Bonin & Iftekhar Hasan & Paul Wachtel, 2004. "Privatization Matters: Bank Efficiency in Transition Countries," William Davidson Institute Working Papers Series 2004-679, William Davidson Institute at the University of Michigan.
  9. Robin Burgess & Rohini Pande, 2004. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," The Centre for Market and Public Organisation 04/104, Department of Economics, University of Bristol, UK.
  10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  11. Santiago Fernández de Lis & Jorge Martínez Pagés & Jesús Saurina, 2000. "Credit Growth, Problem Loans and Credit Risk Provisioning in Spain," Banco de Espa�a Working Papers 0018, Banco de Espa�a.
  12. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 379-408, May.
  13. Beck, Thorsten & Crivelli, Juan Miguel & Summerhill, William, 2005. "State bank transformation in Brazil - choices and consequences," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2223-2257, August.
  14. Clarke, George R G & Cull, Robert, 2002. "Political and Economic Determinants of the Likelihood of Privatizing Argentine Public Banks," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 45(1), pages 165-97, April.
  15. Kane, Edward J, 1977. "Good Intentions and Unintended Evil: The Case against Selective Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 9(1), pages 55-69, February.
  16. E. Gerald Corrigan, 1982. "Are banks special?," Annual Report, Federal Reserve Bank of Minneapolis.
  17. George J. Stigler, 1967. "Imperfections in the Capital Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 287.
  18. Santiago Fernández de Lis & Jorge Martínez Pagés & Jesús Saurina, 2000. "Credit Growth, Problem Loans and Credit Risk Provisioning in Spain," Banco de Espa�a Working Papers 0018, Banco de Espa�a.
  19. de Aghion, Beatriz Armendariz, 1999. "Development banking," Journal of Development Economics, Elsevier, vol. 58(1), pages 83-100, February.
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Citations

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Cited by:
  1. Alejandro Micco & Ugo Panizza & Mónica Yañez, 2004. "Propiedad y desempeño de la banca," Research Department Publications, Inter-American Development Bank, Research Department 4382, Inter-American Development Bank, Research Department.
  2. Alejandro Micco & Ugo Panizza & Mónica Yañez, 2004. "Bank Ownership and Performance," IDB Publications 6685, Inter-American Development Bank.
  3. Alexandre Rands, 2005. "The Impact of States Owned Banks on Interest Rates Spread," Working Papers, Datamétrica Consultoria Econômica 42, Datamétrica Consultoria Econômica, revised 2005.
  4. Micco, Alejandro & Panizza, Ugo, 2006. "Bank ownership and lending behavior," Economics Letters, Elsevier, vol. 93(2), pages 248-254, November.
  5. Frey, Leo & Volz, Ulrich, 2011. "Regional Financial Integration in Sub-Saharan Africa - An Empirical Examination of its Effects on Financial Market Development," Proceedings of the German Development Economics Conference, Berlin 2011 29, Verein für Socialpolitik, Research Committee Development Economics.
  6. Francisco, Manuela & Mascaro, Yira & Mendoza, Juan Carlos & Yaron, Jacob, 2008. "Measuring the performance and achievement of social objectives of development finance institutions," Policy Research Working Paper Series 4506, The World Bank.
  7. Mathias Schmit & Thierry Denuit & Laurent Gheeraert & Cédric Warny, 2011. "Roles, Missions and Business Models of Public Financial Institutions in Europe," SUERF Studies, SUERF - The European Money and Finance Forum, SUERF - The European Money and Finance Forum, number 2011/5, July.
  8. Micco, Alejandro & Panizza, Ugo & Yanez, Monica, 2007. "Bank ownership and performance. Does politics matter?," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 219-241, January.
  9. Alejandro Micco & Ugo Panizza, 2004. "Propiedad de la banca y conducta crediticia," Research Department Publications, Inter-American Development Bank, Research Department 4386, Inter-American Development Bank, Research Department.
  10. Eva Terberger, 2005. "Die Struktur des Finanzsystems und der Finanzierungszugang für kleine Unternehmen," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 75-91.
  11. Pietro Calice, 2013. "Working Paper 174 - African Development Finance Institutions: Unlocking the Potential," Working Paper Series, African Development Bank 470, African Development Bank.
  12. Lazzarini, Sergio G. & Musacchio, Aldo, 2010. "Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_221, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  13. Enrica Detragiache & Poonam Gupta & Thierry Tressel, 2006. "Foreign Banks in Poor Countries," IMF Working Papers 06/18, International Monetary Fund.
  14. Simone Miyuki Hirakawa & Rodrigo De Losso da Silveira Bueno, 2011. "Does location matter toexplain loan interest rates? Evidence from Brazilian local bankingmarkets," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of 127, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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