State-Owned Commercial Banks

77 Pages Posted: 14 Jul 2021

See all articles by Ugo Panizza

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Date Written: June 2021

Abstract

This paper builds a new dataset on bank ownership and reassesses the links between state-ownership of banks and each of financial development, economic growth, financial stability, bank performance, liquidity creation, and lending cyclicality. Using panel data to estimate the short-and medium-term relationship between state-ownership and financial depth, the paper shows that there is no robust correlation between these two variables. The paper also finds no evidence of a negative correlation between state-ownership of banks and economic growth (if anything, the relationship is positive but rarely statistically significant). Looking at financial instability, the paper finds that banking crises predict increases in state-ownership but that there is no evidence that high state-ownership predicts banking crises. Focusing on bank performance, the paper shows that data for the period 1995-2009 are consistent with existing evidence that state owned banks are less profitable than their private counterparts in emerging and developing economies. However, more recent data show no difference between the profitability of private and public banks located in emerging and developing economies. The paper also corroborates the existing literature which shows that in emerging and developing economies lending by state-owned banks is less procyclical than private bank lending. Exploring the role of fiscal fundamentals, the paper does not find any difference in countercyclicality between high and low debt countries, but it finds that countercyclical lending by state-owned banks substitutes, rather than complement, countercyclical fiscal policy. It also finds that lending by state-owned banks helps smoothing production in labor intensive industries and in industries with a large share of small firms.

JEL Classification: G21, H11, O16

Suggested Citation

Panizza, Ugo, State-Owned Commercial Banks (June 2021). CEPR Discussion Paper No. DP16259, Available at SSRN: https://ssrn.com/abstract=3886728

Ugo Panizza (Contact Author)

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

CEPR

London
United Kingdom

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