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Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)
Author:
Mr. John R. Garrett null

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Hans-Joachim Beyer null

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Ms. Claudia H Dziobek
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Series:
IMF Working Papers
Volume/Issue:
Volume 1999: Issue 069
Language:
English
Publication Date:
01 May 1999
DOI:
https://doi.org/10.5089/9781451849042.001
ISBN:
9781451849042
ISSN:
1018-5941
Pages:
27
Keywords:
WP; mortgage bank; ownership structure; equity position; Fannie Mae securities; mortgage bond; policy function; privatization permit DePfa; rent-seeking strategy; Privatization; financial regulation; state banks; Fannie Mae; DePfa; Mortgage backed securities; asset growth; supervisory authority; mortgage lending; return on equity; Mortgages; Securities; Housing; Capital adequacy requirements; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund