The Role of Government and Politics in Fostering Financial Systems

State ownership in banking has received considerable coverage in the academic literature. However, there are a very few recognised case studies of state ownership of banks in developed countries. This thesis explores how bank ownership structure affects capital allocation efficiency within developed countries. This paper uses a new dataset comprises of 306 large private and public banks in 35 major developed and emerging markets in the 1990’s to provide a bank-level empirical analysis on government ownership of banks. This study focuses on bank lending pattern during election years to determine political influence on government owned banks amongst both developed economies and emerging markets. By utilizing annual data on both fixed effect and dynamic panel estimation techniques, evidence suggests that during election years government owned banks increase their lending compared to private banks in developed economies which contradicts findings from previous study. Key macroeconomic variables have been used to check for robustness of the results.