Economic and Legal Considerations of Optimal Privatization : Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)

Author/Editor:

John R. Garrett ; Hans-Joachim Beyer ; Claudia H Dziobek

Publication Date:

May 1, 1999

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Successful privatization must be accompanied by the complete removal of privileges and any public policy mission. Bank behavior changes rapidly as profit maximation replaces the bureaucratic objective function. Once privileges are granted, they are difficult to remove. Therefore, privatization is a one-time (nonreversible) operation. The German mortgage bank, DePfa, went through a carefully planned and lengthy privatization process that was successful. Fannie Mae, the U.S. mortgage firm, became a privately owned institution endowed with special privileges, which led to a quasi-monopoly position. This resulted in suboptimal financial sector performance. Fannie Mae’s special privileges have proven resistant to reform efforts.

Series:

Working Paper No. 99/69

English

Publication Date:

May 1, 1999

ISBN/ISSN:

9781451849042/1018-5941

Stock No:

WPIEA0691999

Format:

Paper

Pages:

27

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