Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)
affiliation not provided to SSRN
International Monetary Fund (IMF)
University of Tennessee, Chattanooga
IMF Working Paper No. 99/69
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.
Number of Pages in PDF File: 27
Keywords: Privatization, financial regulation, state banks, Fannie Mae, DePfa
JEL Classification: G2, G38, L51
Date posted: February 13, 2006
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