Helping to Prevent Banking Crises: Taking the "State" Out of State Banks

George G. Kaufman
Additional contact information
George G. Kaufman: Loyola University Chicago, USA;

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 1999, vol. 02, issue 01, 83-99

Abstract: The banking crises experienced in many countries worldwide in recent years can often be attributed, at least in part, to state owned or controlled banks. These banks are often not typically banks in the traditional sense, but are effectively arms of the government to direct credit to favored borrowers in pursuit of economic, political, or social objectives. This frequently results in costly misallocation of resources. In addition, because their bottom line is not necessarily profitability, many consistently generate losses and continue to operate while economically insolvent. They can do this because all of their deposit liabilities are perceived to be fully guaranteed. Thus, their negative net worths are effectively off-budget liabilities of the government. At some point, taxpayers become reluctant to bear this increasing burden and the government is forced to recapitalize their institutions explicitly. To avoid repetitions of these costly policies, state owned banks should be completely privatized.

JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 1999
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091599000059
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:rpbfmp:v:02:y:1999:i:01:n:s0219091599000059

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091599000059

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().