Tuesday, October 14, 2008

State owned banks

A few years ago I wrote a paper (with Eduardo Levy Yeyati and Alejandro Micco) on state owned banks. The paper argued that public ownership of banks may not be as bad as people think (the message was more nuanced than that) and that, under certain conditions, may even be good. When we submitted the paper to the World Bank Economic Review*, one of the referees laughed (literally) at us. The paper was eventually published in Economia (an earlier and ungated version is here). I wonder if that referee would take the paper more seriously now.
I have other two public banks papers: here and here.

Guillermo Calvo, who used to be my boss at the IDB, once told me that in the end all banks are public (because when they go bust the Government takes them over). As usual, he was right.

*Until recently, the World Bank's view on state owned banks was that: "…whatever its original objectives, state ownership of banks tends to stunt financial sector development, thereby contributing to slower growth." (World Bank, 2001, P. 123). This is funny, if you think that the World Bank IS a state owned bank!
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