State bank transformation in Brazil – choices and consequences

Abstract

This paper analyzes the different options -liquidation, federalization, privatization and restructuring -that the Brazilian state governments had for the transformation of their state banks under the PROES in the late 1990s. Specifically, this paper explores (i) the factors behind the statesÕ choices and (ii) the effects of the transformation process on bank performance and efficiency. We find that states that were more dependent on federal transfers, whose banks were already under federal intervention and that established development agencies, were more likely to relinquish control over their banks and its transformation process. We find that privatized banks increased their performance, while restructured banks did not.

Finance, growth and fragility: the role of government

“…Similarly, in Brazil the introduction of the Real Plan in 1994 that terminated the long-running inflationary tradition prevented the government from bailing out banks owned by individual states, as it had done several times before, and thus forced a complete restructuring of these institutions (Beck, Crivelli, and Summerhill, 2005). In Argentina, the establishment of a currency board in 1991 started the restructuring process of provincial banks (Clarke and Cull,18 See Giannetti and Ongena (2009).…”

Influence of State Banks on Economic Growth: A Cross-Country Analysis

“… an increase in the share of banks with state participation in the banking system reduces the growth rate of productivity of the financial sector adjusted for the corresponding increase of capital (this conclusion is confirmed by researches (Beck,Crivelli, 2005  an increase in the share of state participation in the banking system leads to imbalances in the allocation of financial resources of the state. This is due to the possibility of combining state ownership of banks with the government's desire to finance inefficient but politically significant projects, which are often devoid of positive value for the society of states (this conclusion is confirmed by researches Levy Yeyati , Micco, 2004);  the efficiency of state banks is much lower compared to commercial private banks, which in turn leads to a slowdown in economic growth of the country, which is especially relevant for countries with economies in transition and underdeveloped countries (this conclusion is confirmed by researches Levy Yeyati, Micco, 2004);  the existence of banks with state participation enables the state to control the investment decisions of financial institutions, based solely on political motives (this conclusion is confirmed by studies (Beck,  state banks may be required (either in the form of direct directives or indirectly, through appropriate regulatory influence) to finance inefficient state-owned enterprises, to provide financing to borrowers in certain regions / sectors of the economy under non-market conditions, to pursue a credit policy based on political motives and priorities.…”

Does the growth of state bank capital stimulate the development of the financial sector and the economy? A look through the prism of the global financial crisis of 2008-2009

“…The authors find that states that were more dependent on federal transfers, whose banks were already under federal intervention and that established development agencies were more likely to relinquish control over their banks and transformation processes. They also find that privatized banks had improved performance, while restructured banks did not [10]. Glushkova E.A.…”

“…The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, and the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play [9]. Beck T., Crivelli J.M., Summerhill W. (2005) analyze the different options-liquidation, federalization, privatization, and restructuring-that the Brazilian state government had for the transformation of state banks under the Programa de Incentivo á Redução do Setor Público Estadual na Atividade Bancária (PROES) in the late 1990s. Specifically, they explore the factors behind the states' choices and the effects of the transformation process on bank performance and efficiency.…”