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Cambridge Journal of Economics Advance Access originally published online on June 6, 2005
Cambridge Journal of Economics 2006 30(2):219-226; doi:10.1093/cje/bei042
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© The Author 2005. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Article

How significant is the alleged unfair advantage enjoyed by state-owned banks in Germany?

S. P. Chakravarty* and Jonathan M. Williams

* University of Wales

Address for correspondence: S. P. Chakravarty, School for Business and Regional Development, University of Wales, Bangor, Gwynedd, LL57 2DG, UK; e-mail: abs024{at}bangor.ac.uk

Abstract

The European Commission argues that the state-owned banks in Germany enjoy an unfair advantage over the private sector banks in the cost of borrowing funds in the financial markets because of state guarantees that public sector banks are perceived to enjoy. This note demonstrates that the blame for the comparatively poor profitability of private sector banks in Germany cannot be laid at the door of the relatively cheaper funds that the public sector banks can raise in the wholesale markets.

Key Words: Banking • Dispersion • Efficiency • Competition • Privatisation • European Directive

JEL classifications: G21, D21, F15

Manuscript received February 24, 2003; final version received March 12, 2004.


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