Should the Government Be in the Banking Business? The Role of State-Owned and Development Banks

47 Pages Posted: 25 Apr 2011

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Alejandro Micco

University of Chile

Ugo Panizza

United Nations - Conference on Trade and Development (UNCTAD); Graduate Institute of International and Development Studies (IHEID)

Date Written: November 2004

Abstract

This paper surveys the theoretical and empirical literature on the role of state-owned banks and also presents some new results and a robustness analysis. The paper shows that state-owned banks located in developing countries have fiscal costs because they are characterized by lower returns than comparable privately owned banks (on the other hand, there is no evidence that state-owned banks located in industrial countries are less profitable than their private counterparts). We then point out that this evidence cannot be used as an argument against the existence of state-owned banks, as this low profitability might stem from state-owned banks’ activity on projects characterized by low private sector investment and high social return. While we find no evidence that the presence of state-owned banks promotes economic growth or financial development, we also find that the evidence that state-owned banks lead to lower growth and financial development is not as strong as previously thought.

Suggested Citation

Levy-Yeyati, Eduardo Levy and Micco, Alejandro and Panizza, Ugo G., Should the Government Be in the Banking Business? The Role of State-Owned and Development Banks (November 2004). IDB Working Paper No. 428. Available at SSRN: https://ssrn.com/abstract=1818717 or http://dx.doi.org/10.2139/ssrn.1818717

Eduardo Levy Levy-Yeyati (Contact Author)

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Ugo G. Panizza

United Nations - Conference on Trade and Development (UNCTAD) ( email )

Palais des Nations
Office E 8074
Geneva, 1211
Switzerland

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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