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Title:The threat of capital drain: a rationale for public banks? PDF Logo
Authors:Hakenes, Hendrik
Schnabel, Isabel
Issue Date:2006
Series/Report no.:Preprints of the Max Planck Institute for Research on Collective Goods 2006,11
Abstract:This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility.
Subjects:Public banks
cooperative banks
capital drain
credit rationing
financial integration
privatization
JEL:G21
F36
H11
L33
Document Type:Working Paper
Appears in Collections:Preprints of the Max Planck Institute for Research on Collective Goods

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