What should the state do with its banks?

Historically, state banks have been acting as an important instrument of the economic development all over the world regardless of the level of economic development in a particular country. In the countries with lower level of economic development, state banks fulfil a wide range of tasks providing financing for infrastructural projects, export and import transactions, etc. And even in the advanced countries with well-functioning private financial institutions and capital markets, state banks continue to play an important role in providing financial services for strategic sectors of economy.

The key argument often put forward in favor of state banks is their ability to stimulate economic growth through financing particular sectors or regions where demand cannot be fully satisfied by private banks.

The state as a policy maker in the market of banking services is interested in developing of the banking sector in order to achieve economic growth. Banks should provide loans to the businesses therefore encouraging investments, rise of production and employment, and as a result ensuring improvement of people’s wellbeing.

Meanwhile, there is a risk that political motives will dominate over the development tasks that will lead to politically motivated stimulation of crediting through state banks (especially for state companies) and as a result to deterioration of banks’ credit portfolios.

The aim of the research papers is to find the answer to the question: what to do with state banks?


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