Are Private Banks More Efficient than Public Banks? Evidence from Russia

48 Pages Posted: 17 Apr 2008

See all articles by Alexei Karas

Alexei Karas

Utrecht University, University College Roosevelt; Utrecht University School of Economics; Centre for Russian International Socio-Political and Economic Studies (CERISE)

Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE); Ghent University - Department of General Economics

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Date Written: April 10, 2008

Abstract

We study whether bank efficiency is related to bank ownership in Russia. We find that foreign banks are more efficient than domestic private banks and - surprisingly - that domestic private banks are not more efficient than domestic public banks. These results are not driven by the choice of production process, the bank's environment, management's risk preferences, the bank's activity mix or size, or the econometric approach. The evidence in fact suggests that domestic public banks are more efficient than domestic private banks and that the efficiency gap between these two ownership types did not narrow after the introduction of deposit insurance in 2004. This may be due to increased switching costs or to the moral hazard effects of deposit insurance. The policy conclusion is that the efficiency of the Russian banking system may benefit more from increased levels of competition and greater access of foreign banks than from bank privatization.

Keywords: bank efficiency, state ownership, foreign ownership, Russia

JEL Classification: G21, P30, P34, P52

Suggested Citation

Karas, Alexei and Schoors, Koen J. L. and Weill, Laurent, Are Private Banks More Efficient than Public Banks? Evidence from Russia (April 10, 2008). BOFIT Discussion Paper No. 3/2008, Available at SSRN: https://ssrn.com/abstract=1121709 or http://dx.doi.org/10.2139/ssrn.1121709

Alexei Karas (Contact Author)

Utrecht University, University College Roosevelt ( email )

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Utrecht University School of Economics ( email )

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Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

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Koen J. L. Schoors

Ghent University - Centre for Russian International Socio-Political and Economic Studies (CERISE) ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 265 35 99 (Fax)

Ghent University - Department of General Economics ( email )

Tweekerkenstraat 2
Ghent, 9000
Belgium
+32 9 264 34 78 (Phone)
+32 9 264 35 99 (Fax)

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

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