A Reappraisal of State-Owned Banks

Eduardo Levy Yeyati, Alejandro Micco, & Ugo Panizza • http://www.brookings.edu • Spring 2007

A reappraisal of state-owned banks
Authors: Eduardo Levy Yeyati; Alejandro Micco; Ugo Panizza
Year: 2007
Published in: Economia : Journal of the Latin American and Caribbean Economic Association. – Washington, DC : Brookings Institution Press, ISSN 1529-7470, ZDB-ID 20698392. – Vol. 7.2006/07, 2, p. 209-247.

We revisit the public banks debate, survey the theoretical arguments and test the robustness (and expand) the existing empirical evidence. While we find some support for the view that public banks do not allocate credit optimally, we also report indicative evidence that they exert a positive influence on private bank efficiency, and may contribute to reduce credit procyclicality. Ultimately, we find that the recent criticism to public banks has generally been based on inconclusive cross-country evidence. More specific bank-level research is still needed to substantiate a case for or against public banks in developing economies.

This paper is divided into three parts. The first part describes the evolution of state ownership of banks in Latin America and the rest of the world. The second part discusses the theoretical justification for the existence of public banks. The third part surveys the existing empirical evidence and presents some new results.

Read the entire paper here.
A .pdf version of the paper is here.

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