Government ownership, regulation, economic development and bank stability - International evidence

This paper examines the association between government ownership and bank stability over 1997-2010 across a sample of 103 countries. With a continuous variable to proxy for government ownership, our system GMM estimates indicate that the association between government ownership and bank stability depends on a country’s economic development and regulatory quality. In developed, high income countries, degree of government ownership is positively associated with bank distance to default. Contradictory findings are reported for developing, middle and low-income countries. Irrespective of country classification used, bank liquidity and interest margin are negatively associated with bank stability. In contrast, bank distance to default is positively associated with efficiency and bank capitalization. JEL classification: G21; G28; G32; G38; C33