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The Future of State-Owned Financial Institutions

edited by Gerard Caprio, Jonathan Fiechter, Robert E. Litan, and Michael Pomerleano

Publication Year: 2010

Research suggests that if the majority of a country's financial institutions are owned by the state, that country will experience slower financial development, less efficient financial systems, less private sector credit, and slower GDP growth. Yet more than 40 percent of the world's population live in countries in which public sector institutions dominate the banking system. In The Role of State-Owned Financial Institutions: Policy and Practice noted experts discuss the challenges presented by state-owned financial institutions and offer cross-disciplinary solutions for policymakers and banking regulators. The issues include: methods for effectively managing, reforming, and privatizing state-owned banks; the fiscal costs and contingent liabilities of state-owned banks; macroeconomic implications and the impact of state-owned banking on access to credit in an economy; guidance for effective supervision of state-owned banks; managerial perspectives on improving products, human resources, and risk; management case studies of different methods of privatization, such as initial public offerings, employee stock ownership plans, and strategic investors Contributors include David Binns (Beyster Institute), Robert Cull (World Bank), Ron Gilbert (ESOP Services), James A. Hanson (World Bank), Richard Hemming (International Monetary Fund), Fred Huibers (ING Research), Arminio Fraga (formerly Central Bank of Brazil), Nicholas Lardy (Institute for International Economics), David Marston (International Monetary Fund), Moody's Global Investor Service, Herman Mulder (ABN-Amro), William Nichol (Deutsche Bank AG), Urjit Patel (Infrastructure Development Finance Company, India), and P. S. Srinivas (World Bank).

Published by: Brookings Institution Press

Title Page, Copyright

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pp. i-iv


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pp. v-vii

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pp. ix-x

Market capitalism may be spreading around the globe, but there remain pockets of heavy state involvement—and state ownership of enterprises in particular—throughout the world. This volume focuses on state ownership of financial institutions, especially banks, and examines a series of issues:...

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1. Introduction

Gerard Caprio, Jonathan L. Fiechter, Robert E. Litan, Michael Pomerleano

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pp. 1-9

It was only a short time ago that it was fashionable for some to speak of “the end of history”—or the conversion of most of the world’s economies to various forms of democratic capitalism. The tragic events of September 11, 2001, and the terrorism leading up to and following the Iraq war clearly demonstrate...

Part I: Overview of State Ownership in the Financial Sector

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2. The Transformation of State-Owned Banks

James A. Hanson

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pp. 13-49

State-owned banks often have high nonperforming assets and high costs and make only a limited contribution to development. Improving their performance is important because they still dominate banking for the majority of people in developing countries, despite the rash of bank privatizations in...

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3. Observations from an International Monetary Fund Survey

David Marston, Aditya Narain

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pp. 51-71

The state has a major presence in the financial sector of many countries around the world. This is particularly visible in banking, where despite several privatization initiatives over the last decade, public sector banks are still estimated to account for a significant portion of total banking sector...

Part II: Fiscal Implications

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4. Fiscal Transparency and State-Owned Banks

Manal Fouad, Richard Hemming, Davide Lombardo, Wojciech Maliszewski

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pp. 75-92

Insufficient attention has been paid to the activities of public financial institutions in discussions of fiscal transparency, although the benefits of fiscal transparency are widely recognized. These benefits are highlighted in the International Monetary Fund’s Manual on Fiscal Transparency, which opens...

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5. State-Owned Banks in China

Nicholas R. Lardy

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pp. 93-120

China's transition to a market economy has proceeded gradually over the past twenty-five years. Perhaps it is not surprising that progress across product, labor, and capital markets has been highly differentiated. As outlined in this chapter, in sharp contrast to the situation twenty-five years ago, when only a...

Part III: Country Analysis: Indonesia and India

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6. State-Owned Banks in Indonesia

P. S. Srinivas, Djauhari Sitorus

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pp. 123-180

As in much of the rest of the developing world, state-owned banks in Indonesia originated with the government’s objectives to channel resources to “priority” sectors of the economy as well as to provide financial services to underserved parts of a widely dispersed country. Each of the banks was also...

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7. Role of State-Owned Financial Institutions in India: Should the Government "Do" or "Lead"?

Urjit R. Patel

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pp. 181-208

A deep and efficient financial sector is necessary for the optimal allocation of resources. Governments have been involved in the financial sectors—in intermediation, if not directly as the owners of intermediaries—of many countries, even currently developed ones, during various stages of their growth....

Part IV: Managing and Regulating

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8. Lessons from Southern Africa

Lewis Musasike, Ted Stilwell, Moraka Makhura, Barry Jackson, Marie Kirsten

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pp. 211-227

The state has always played a role in the economies of both developed and developing nations, although the dominance of that role has changed over time in response to globalization, privatization, and the perceived efficiencies of the private sector. The establishment of the Bretton Woods institutions was...

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9. Lessons from Indonesia

Pak Rudjito, Hendrawan Tranggana

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pp. 229-239

Indonesian state-owned enterprises are major actors in national economic development. The activities managed by these enterprises cover almost all sectors in Indonesia, and almost all people must deal with them in one way or another....

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10. Principles for Supervision

Jonathan L. Fiechter, Paul H. Kupiec

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pp. 241-255

When policy discussions are focused on state-owned financial institutions, economists often suggest privatization as a means for improving economic efficiency and social welfare. In a wide range of settings, competitive market forces promote an efficient allocation of resources. Theory and...

Part V: Preparing for Privatization

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11. Lessons from Pakistan

Ishrat Husain

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pp. 259-267

Pakistans's financial sector privatization, which began in the early 1990s and continues today, offers valuable lessons for policymakers in other emerging economies. Pakistan successfully reduced state ownership in the banking sector from 92 percent of assets in 1990 to 18.6 percent in 2004. The...

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12. Lessons from Uganda

Louis Kasekende

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pp. 269-275

The privatization of the Uganda Commercial Bank (UCB) occurred during a period of comprehensive reforms aimed at introducing market-based mechanisms for resource allocation and price determination, moving away from controls of the 1960s and 1970s. The government recognized early...

Part VI: Achieving Privatization

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13. Empirical Studies

George R. G. Clarke, Robert Cull, Mary Shirley

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pp. 279-313

State ownership of large parts of the banking system is relatively rare in developed countries but widespread in less developed countries (table 13-1). In 1999 governments held controlling shares in banks representing more than 30 percent of banking sector assets in 25 percent of the seventy-eight less developed...

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14. Initial Public Offerings

Fred E. Huibers

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pp. 315-344

Since the early 1980s, a growing number of state-owned enterprises have been privatized, with the total value of privatization transactions in the period 1982–2000 amounting to more than $1 trillion.1 After privatizing industrial firms, governments increasingly began to dispose of companies...

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15. Employee Stock Ownership Plans

David M. Binns, Ronald J. Gilbert

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pp. 345-371

International competitive forces are accelerating the movement toward globalization of financial markets. As a result of lowered barriers to communications and information technology, political borders for financial services often include a much larger territory than do market areas for most...


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pp. 373-374


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pp. 375-382

E-ISBN-13: 9780815717065
E-ISBN-10: 0815717067

Page Count: 382
Publication Year: 2010