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

John Garrett, Hans-Joachim Beyer and Claudia Dziobek

No 1999/069, IMF Working Papers from International Monetary Fund

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: WP; mortgage bank; ownership structure; equity position; Fannie Mae securities; mortgage bond; policy function; privatization permit DePfa; rent-seeking strategy; Privatization; financial regulation; state banks; Fannie Mae; DePfa; Mortgage backed securities; asset growth; supervisory authority; mortgage lending; return on equity; Mortgages; Securities; Housing; Capital adequacy requirements; Europe (search for similar items in EconPapers)
Pages: 27
Date: 1999-05-01
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