Bank Ownership and Financial Stability

Enrico Perotti and Marcel Vorage
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Marcel Vorage: University of Amsterdam

No 10-022/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We study a politician's choice for state or private control of banks. The choice trades of lobbying contributions against social welfare, weighted by political accountability.Politicians facing few constraints prefer state control to maximize their rents. As state banks are less efficient, at higher level of accountability there is a shift to private control. At the transition point there is a jumpin risk taking, as private banks do not internalize the social costs of bank failure. To discourage private risk taking, the politician leaves more rentsto private banks.We conclude with some suggestive data complementing existing evidence that financial instability is highest when bank control is capturedby small lobbies.

Keywords: Political Economy; Bank Control; Lobbying; Instability (search for similar items in EconPapers)
JEL-codes: D70 G21 G28 (search for similar items in EconPapers)
Date: 2010-02-19, Revised 2010-09-11
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20100022

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