I have always had this intuitive prior that there are probably just as many (proportionately) failed private banks as public banks. I guess that's an empirical question. Nicholas Gruen kindly forwarded me this paper the other day that looks at the economic effects of public ownership of banks, and arrives at some counter-intuitive findings. One of my university lecturers, who was something of an adonis with the females on campus, is actually thanked in the acknowledgements. I will electronically transfer $5 to anyone who can work out who he is. Anyhow, the abstract is enclosed as follows:
We show that previous results suggesting that government ownership of banks has a negative effect on economic growth are not robust to adding more 'fundamental' determinants of economic grwoth, such as institutions. We also present regression results from a more recent period (1995-2007) which suggest that, if anything, government ownership of banks has been associated with higher long run growth rates, even after controlling for institutions and other variables suggested by the growth literature. Drawing on the current global financial crisis, we provide a conceptual framework which explains why under certain circumstances government owned banks could have a greater effect on economic growth than privately-owned banks.
