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Do Public Banks have a Competitive Advantage?

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  • Astrid Matthey

    (Max-Planck-Institute of Economics)

Abstract

Private banks often blame state guarantees to distort competition by giving public banks the advantage of lower funding costs. In this paper I show that if borrowers perceive the public bank as supporting economic development, private banks may be able to separate ï¬ rms by self selection, enter the market, and obtain proï¬ ts in equilibrium despite their cost disadvantage. The public bank's competitive advantage may be offset, independently of what its true objective function is. Even perfect competition between private banks does not lead to zero proï¬ ts.

Suggested Citation

  • Astrid Matthey, 2007. "Do Public Banks have a Competitive Advantage?," Jena Economics Research Papers 2007-100, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2007-100
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2007/wp_2007_100.pdf
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    References listed on IDEAS

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    Cited by:

    1. Başçi, Eşref Savaş & Sakinç, Öznur, 2014. "Determinants of Bank Profitability in Turkey: An Empirical Analysis on Types of Banking from 2002 to 2012," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(1), pages 3-6.
    2. Höwer, Daniel, 2016. "The role of bank relationships when firms are financially distressed," Journal of Banking & Finance, Elsevier, vol. 65(C), pages 59-75.
    3. Höwer, Daniel, 2009. "From soft and hard-nosed bankers: bank lending strategies and the survival of financially distressed firms," ZEW Discussion Papers 09-059, ZEW - Leibniz Centre for European Economic Research.
    4. Höwer, Daniel, 2013. "Corporate main bank decision," ZEW Discussion Papers 13-018, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    public banks; state guarantee; self-selection;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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