How the state ruins balance sheets!
A new study that reviewed the performance of some 30 banks in Germany and divided them into publicly owned and privately held banks found that state-run banks had 2-3 times higher losses than private banks. The authors of the study think that this is due to the poor composition of supervisory boards where they found a tremendous lack of competence (in publicly owned banks).
"For this purpose, we examine the biographical background of 593 supervisory board members in the 29 largest banks and find a pronounced difference in the finance and management experience of board representatives across private and state-owned banks. Measures of “boardroom competence” are then related directly to the magnitude of bank losses in the recent financial crisis. Our data confirms that supervisory board (in-) competence in finance is related to losses in the financial crisis. Improved bank governance is therefore a suitable policy objective to reduce bank fragility."
Another good example why public management should be the least favoured option for anyone. Unfortunately, no one has calculated the costs that these publicly owned banks have meant to tax payer's money so far (including bail-outs). It would be interesting to oppose this costs to the cost of having them let gone bankrupt.
A similar study from the University of Ohio came to similar results.
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