Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae)

By John R. Garrett, Hans-Joachim Beyer, Claudia H Dziobek

May 1, 1999

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John R. Garrett, Hans-Joachim Beyer, and Claudia H Dziobek. Economic and Legal Considerations of Optimal Privatization: Case Studies of Mortgage Firms (DePfa Group and Fannie Mae), (USA: International Monetary Fund, 1999) accessed November 9, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Capital adequacy requirements, Economic sectors, Financial institutions, Financial regulation and supervision, Housing, Mortgages, National accounts, Privatization, Securities

Keywords: Asset growth, Capital adequacy requirements, DePfa, Equity position, Europe, Fannie Mae, Fannie Mae securities, Financial regulation, Housing, Mortgage backed securities, Mortgage bank, Mortgage bond, Mortgage lending, Mortgages, Ownership structure, Policy function, Privatization, Privatization permit DePfa, Rent-seeking strategy, Return on equity, Securities, State banks, Supervisory authority, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/069
Stock No:

WPIEA0691999
ISBN:

9781451849042
ISSN:

1018-5941

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