The Influence of State Owned Banks on Private Savings
Existing research on the determinants of private saving rates focuses on the effects of socio-economic factors and financial development. These studies do not provide a comprehensive picture of the influence of government-owned banks. This paper analyzes the accumulation of private savings as a function of state ownership of banking systems. Using a sample of 91 countries over a span of 15 years from 1991 to 2005, in a fixed-effects panel model, which includes GDP growth rate, inflation, political regime score, privatization, as well as other elements, the paper finds that private savings will tend to decrease after a reduction of government ownership in the banking system. The findings suggest that reduced government intervention in banks will result in higher demand for household credit. In addition, state-owned banks prefer to serve politically associated clients, which reduce the efficiency of banking operations. Furthermore, shadow banking woes are created due to inefficiency of banking system, and other factors might raise the risk of economic instability.
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