The Threat of Capital Drain: A Rationale for Public Banks?

Hendrik Hakenes and Isabel Schnabel

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility.

Keywords: Public banks; cooperative banks; capital drain; credit rationing; financial integration; privatization. (search for similar items in EconPapers)
JEL-codes: F36 G21 H11 L33 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-fdg, nep-fin, nep-fmk, nep-pbe and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: The Threat of Capital Drain: A Rationale for Public Banks? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:107

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