The Financial Economics of Privatization

By William L. Megginson | Go to book overview
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Privatization Industry
Studies Commercial Banking

During the past 15 years, over 250 commercial banks have been fully or partially privatized by governments of 59 countries, either publicly through public offerings of shares or privately through an asset sale. In many cases, this represented a fundamental break with a national past that emphasized the strategic role of commercial banking in funding the nation’s economic development, and the national government’s key role in planning and directing that development. This chapter examines why governments are choosing to privatize their stateowned banks (SOBs), how they are selling SOBs, and whether these sales have, on average, achieved the goals set by the divesting governments.

As a first step in determining why governments are privatizing banks, we examine why these banks became state-owned in the first place and then ask what caused societies to decide that state-owned banking was not a good idea. Next, we present and discuss the historical record of bank privatizations before surveying the empirical evidence regarding bank privatization in, respectively, developed countries, nontransition developing countries, and transition economies. We then briefly assess the evidence on the merits of foreign ownership of privatized banks, and then discuss the future of banking privatization—and specifically ask how many banking assets governments still have left to sell. The final section summarizes and concludes.

Why Has State Ownership of Commercial Banks Been So
Prevalent Historically?

Economists have debated the relative merits of state versus private ownership for centuries. There is an enormous theoretical and empirical literature on government versus private ownership of nonfinancial firms, which we surveyed in chapter 2. We focus here specifically on how this debate relates to state ownership of commercial banking, since this is arguably the most basic industry in a modern


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The Financial Economics of Privatization


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