State-owned commercial banks

ABSTRACT

This paper builds a new dataset on bank ownership and finds no evidence of a negative correlation between state-ownership of banks and economic growth. Banking crises predict increases in state-ownership but that there is no evidence that high state-ownership predicts banking crises. Contrary to past literature, the paper also shows that recent data show no difference between the profitability of private and public banks located in emerging and developing economies. The paper corroborates the existing literature which shows that in emerging and developing economies lending by state-owned banks is less procyclical than private bank lending.

KEYWORDS:

• Banking
• state-owned banks
• financial stability

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. These shares include state-owned development banks. State-ownership shares of commercial banks are 4–6 percentage points lower (see Figures 4–6, below).

Bank ownership and lending to the government (dep. var government bond holding over assets). The spikes are 95% (in black) and 99% (in grey) confidence intervals.

Bank ownership and lending to the government (dep. var government bond holding over assets). The spikes are 95% (in black) and 99% (in grey) confidence intervals.

2. Besides these four main sources of data, the paper also uses information on banking crisis from Laeven and Valencia (2018) and sovereign credit rating data from Fitch, Moody’s, and Standard & Poor’s. Details on the construction of the bank-level dataset are provided in Panizza (2021).

3. The 20% threshold is standard in the literature because, as mentioned by La Porta, Rafael, and Shleifer (2002), 20% ownership is typically sufficient for control. Ture (2021) Frigerio and Vandone (2018) and Cornett et al. (2009). The results of this paper are robust to using a higher threshold for the state-ownership dummy.

4. I assume $\phi >0$, because with $\phi =0$, the social planner problem yields the corner solution $s=1$.

5. Table 12 uses 5-year growth spells. I obtain similar results if I use 10-year growth spells

6. Bank types are: Bank holding company, Commercial bank, Credit union, Cooperative bank, Investment bank, Private bank, Savings bank.

7. I adopt this strategy because in emerging and developing countries trend growth is not well-defined (Aguiar and Gopinath 2007).

8. Another possible difference has to do with the role of global crises. Specifically, Ture (2021) finds that high public debt in developing economies matters for cyclicality when she excludes the Global Financial Crisis from the sample.