Publication: State-owned Banks in the Transition : Origins, Evolution, and Policy Responses
Date
2003
ISSN
Published
2003
Author(s)
Sherif, Khaled
Borish, Michael
Gross, Alexandra
Abstract
Many of the distortions in poorly
performing economies do not originate in the banking sector,
but where state banks still control a large share of the
resources in the banking system, they continue to pose a
risk to macroeconomic and fiscal stability. State banks are
typically vehicles for patronage that worsen the prospects
for competitive market development. Alternatively, these
state banks can be ineffective shells that fail to perform a
useful intermediation role once the government imposes
effective hard budget constraints and a modern supervisory
system. The most problematic state banks have been
agricultural and industrial banks, whose original role was
to finance state farms and industrial enterprises that
employed large numbers of people and served as the backbone
of the socialist economic mode. Banks now show stronger
growth in deposits and capital in many countries in Central
and Eastern Europe and the Baltics, suggesting that these
countries have put into place structures that have helped to
restore confidence in banking systems among creditors,
investors, and the public. Recommended strategies are that
Governments need to design strategies to reduce state
banking in order to help create a stable banking
environment. Governments should take measures to improve the
business environment as part of a broad overall strategy to
strengthen the financial system and end state ownership of
banks. Such measures include providing support to improve
corporate governance, reform judicial systems, build
registries of collateral, reinforce creditors' rights
and contract enforcement, modernize accounting and auditing
practices, reduce administrative obstacles to business
registration, and modernize bankruptcy laws.
Citation
“Sherif, Khaled; Borish, Michael; Gross, Alexandra. 2003. State-owned Banks in the Transition : Origins, Evolution, and Policy Responses. © Washington, DC: World Bank. http://openknowledge.worldbank.org/handle/10986/14851?show=full License: CC BY 3.0 IGO.”