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

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Author Info
Hendrik Hakenes (Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany, hakenes@coll.mpg.de)
Isabel Schnabel (Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany, schnabel@coll.mpg.de)

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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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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number 107.

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Date of creation: Apr 2006
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Handle: RePEc:trf:wpaper:107

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

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Hakenes, Hendrik & Schnabel, Isabel, 2005. "Bank Size and Risk-Taking under Basel II," Sonderforschungsbereich 504 Publications 05-07, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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    • Hendrik Hakenes & Isabel Schnabel, 2006. "Bank Size and Risk-Taking under Basel II," Discussion Papers 88, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexander Conrad & Doris Neuberger & Maria Schneider-Reißig, 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, Germany. [Downloadable!]
  2. Hendrik Hakanes & Christa Hainz, 2008. "The Politician and his Banker," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_01, Max Planck Institute for Research on Collective Goods. [Downloadable!]
    Other versions:
  3. 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. [Downloadable!] (restricted)
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