Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)
May 1, 1999
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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.
Subject: Banking, Capital adequacy requirements, Economic sectors, Financial institutions, Financial regulation and supervision, Housing, Mortgages, National accounts, Privatization, Securities
Keywords: asset growth, Capital adequacy requirements, DePfa, equity position, Europe, Fannie Mae, Fannie Mae securities, financial regulation, Housing, Mortgage backed securities, mortgage bank, mortgage bond, mortgage lending, Mortgages, ownership structure, policy function, Privatization, privatization permit DePfa, rent-seeking strategy, return on equity, Securities, state banks, supervisory authority, WP
Pages:
27
Volume:
1999
DOI:
Issue:
069
Series:
Working Paper No. 1999/069
Stock No:
WPIEA0691999
ISBN:
9781451849042
ISSN:
1018-5941
