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The Threat of Capital Drain: A Rationale for Public Banks?

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  • Hendrik Hakenes

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Isabel Schnabel

    ()
    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility.

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Bibliographic Info

Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2006_11.

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Length: 36 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:mpg:wpaper:2006_11

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Keywords: Public banks; cooperative banks; capital drain; credit rationing; financial integration; privatization;

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References

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Cited by:
  1. Mathias Schmit & Thierry Denuit & Laurent Gheeraert & Cédric Warny, 2011. "Roles, Missions and Business Models of Public Financial Institutions in Europe," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  2. Uwe Vollmer & Diemo Dietrich & Ralf bebenroth, 2009. "Behold the 'Behemoth'. The privatization of Japan Post Bank," Discussion Paper Series 236, Research Institute for Economics & Business Administration, Kobe University.
  3. Christa Hainz & Hendrik Hakenes, 2007. "The Politician and his Banker," CESifo Working Paper Series 2153, CESifo Group Munich.
  4. Christa Hainz & Hendrik Hakenes, 2009. "The Politician and his Banker – How to Efficiently Grant State Aid," Ifo Working Paper Series Ifo Working Paper No. 71, Ifo Institute for Economic Research at the University of Munich.
  5. Conrad, Alexander & Neuberger, Doris & Schneider-Reißig, Maria, 2008. "Geographic and demographic Bank outreach: Evidence from Germany's three-pillar banking system," Thuenen-Series of Applied Economic Theory 98, University of Rostock, Institute of Economics.
  6. Tobias Körner & Isabel Schnabel, 2010. "Public Ownership of Banks and Economic Growth – The Role of Heterogeneity," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_41, Max Planck Institute for Research on Collective Goods.
  7. Conrad, Alexander, 2008. "Banking in schrumpfenden Regionen: Auswirkungen von Alterung und Abwanderung auf Regionalbanken," Thuenen-Series of Applied Economic Theory 94, University of Rostock, Institute of Economics.
  8. Elena Carletti & Hendrik Hakenes & Isabel Schnabel, 2005. "The Privatization of Italian Savings Banks: A Role Model for Germany?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 32-50.

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