IMF Working Papers

IMF Working Papers
Journal
Publisher:
International Monetary Fund
ISSN:
1018-5941
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
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Economic and Legal Considerations of Optimal Privatization : Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)

Economic and Legal Considerations of Optimal Privatization : Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)
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Journal Issue
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Volume/Issue:
1999/69
Series:
IMF Working Papers
Author(s):
John Garrett, Hans-Joachim Beyer, and Claudia Dziobek
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
May 1999
DOI:
http://dx.doi.org/10.5089/9781451849042.001
ISBN:
9781451849042
ISSN:
1018-5941
Page:
27
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.
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