The Economics of Bank Privatization

51 Pages Posted: 2 Feb 2004

Date Written: January 21, 2004


This paper surveys the empirical literature examining bank privatization. We begin by documenting the extent of, theoretical rationale for, and measured performance of state-owned banks around the world, and then assess why many governments have chosen to privatize their often very large state owned banking sectors. The empirical evidence clearly shows that state owned banks are far less efficient than privately owned banks, and that state domination of banking imposes increasingly severe penalties on those countries with the largest state banking sectors. On the other hand, there is little in the empirical record to suggest that privatization alone transforms the efficiency of divested banks, especially when these are only partially privatized. Privatization generally improves performance, but by far less than is typically observed in studies of non-financial industries. An increasingly common outcome of large-scale bank privatization programs is foreign ownership of many nations' banking sector, which evidence suggests is usually positive in an economic sense, but problematic politically.

Keywords: Bank, privatization, state owned, ownership

JEL Classification: L33, G21

Suggested Citation

Megginson, William L., The Economics of Bank Privatization (January 21, 2004). Available at SSRN: or

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics