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Empirical Studies of Bank Privatization: Some Lessons *

Empirical Studies of Bank Privatization: Some Lessons *. George Clarke, Robert Cull, and Mary Shirley

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Empirical Studies of Bank Privatization: Some Lessons *

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  1. Empirical Studies of Bank Privatization: Some Lessons* George Clarke, Robert Cull, and Mary Shirley * Clarke and Cull are senior economists in the Development Economics Research Group at the World Bank. Shirley is the president of the Ronald Coase Institute. We would like to thank Gerard Caprio and participants at the Bank Privatization Conference held at the World Bank in November 2003 for comments on earlier drafts. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive or the countries they represent.

  2. 11 Country Case Studies Argentina, Brazil, Mexico Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania Nigeria Pakistan 5 X-country Studies Political/Econ. determinants of priv. Share issue priv. (SIPs) Effects on acquirers Liberalization, Restructuring SE Asia Failure Resolution, effect on SE Asian Firms The Project

  3. Where found? • http://www.worldbank.org/research/projects/bank_privatization_conference.htm • Special Issue, Journal of Banking and Finance, forthcoming 2005.

  4. Privatization in Case Study Countries Full sample: +/- 110 countries (Barth, Caprio & Levine, 1999, 2003)

  5. Basic Results • Significant Improvement on >=1 outcome variable (NPL, ROA, ROE, Costs/Assets, efficiency) except: • Episode I (Czech, Mexico, others) • Insufficient post-priv. time series (Romania) • Prudent lending usually means slower growth in credit (Mexico, Arg., Transition economies) • Fiscal savings from not having to recapitalize appear large (but are hidden) (Arg.)

  6. Performance Benefits Decline When: • The Gov’t does not fully divest (X-country; Brazil; Nigeria; Czech I) • Restrictions placed on foreign bidding eligibility (Mexico I, Poland I) • SIP employed in a weak institutional environment (X-country; counter-example Australia)

  7. Political Economy: Why do countries privatize? • Performance of banking sector is poor, especially during crisis (X-country, Arg, Brazil) • Government is fiscally conservative (X-C, Arg), or needy (Brazil, Arg) • Government is more accountable to the electorate (X-C) • Less accountable to more narrow interest groups: Dominant bank, overstaffed, overall public employment (Arg) • Tools exist to mollify int. groups: development agencies (Brazil); restrictions on branch closing, layoffs (Arg)

  8. Making Privatization Feasible: Contract Design Argentine Provinces with Fiscal Problems: • Accepted more layoffs • Guaranteed more assets assumed by buyer • But, received higher price After Tequila Crisis, outcomes worse for sellers (provincial pols) • More Layoffs • Fewer assets assumed by buyers

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