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

Hendrik Hakenes and Isabel Schnabel

No 2006_11, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

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)
Pages: 36 pages
Date: 2006-04
New Economics Papers: this item is included in nep-ban, nep-fin, nep-fmk and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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http://www.coll.mpg.de/pdf_dat/2006_11online.pdf (application/pdf)

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:mpg:wpaper:2006_11

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