Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (Depfa Group and Fannie Mae)

27 Pages Posted: 13 Feb 2006

See all articles by Hans-Joachim Beyer

Hans-Joachim Beyer

affiliation not provided to SSRN

Claudia Dziobek

International Monetary Fund (IMF)

John Garrett

University of Tennessee, Chattanooga

Date Written: May 1999

Abstract

Successful privatization must be accompanied by the complete removal of privileges and any public policy mission. Bank behavior changes rapidly as profit maximation replaces the bureaucratic objective function. Once privileges are granted, they are difficult to remove. Therefore, privatization is a one-time (nonreversible) operation. The German mortgage bank, DePfa, went through a carefully planned and lengthy privatization process that was successful. Fannie Mae, the U.S. mortgage firm, became a privately owned institution endowed with special privileges, which led to a quasi-monopoly position. This resulted in suboptimal financial sector performance. Fannie Mae`s special privileges have proven resistant to reform efforts.

Keywords: Privatization, financial regulation, state banks, Fannie Mae, DePfa

JEL Classification: G2, G38, L51

Suggested Citation

Beyer, Hans-Joachim and Dziobek, Claudia Helene and Garrett, John, Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (Depfa Group and Fannie Mae) (May 1999). IMF Working Paper, Vol. , pp. 1-27, 1999. Available at SSRN: https://ssrn.com/abstract=880596

Hans-Joachim Beyer

affiliation not provided to SSRN ( email )

No Address Available

Claudia Helene Dziobek (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

John Garrett

University of Tennessee, Chattanooga ( email )

615 McCallie Avenue
Chattanooga, TN 37403-2598
United States

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