On the World
The Role of Public Sector Banks
NEVATHIR
February 20, 2017
Due to neoliberal privatization, public sector banks are no longer fashionable. These banks often suffer corruption, inefficiency, and political abuse. Neoliberalism took advantage of Soviet dissolution to launch anti-communist propaganda against the public sector and claimed victory for financial privatization.
Yet public sector banks don't imply communism and neoliberal propaganda armed with deregulation succeeded at the cost of 2008 global financial crisis. Historical records tell that the distinction between public sector and private sector isn't superiority or inferiority, but trade-offs. Public sector banks, though politically vulnerable, often served as fiscal arms for critical government development programs. Private sector banks, though prone to balance sheet crises, often suffered less political corruption. It's deception employed by politicians and economists that resulted in Soviet tyranny and 2008 disasters. People are fooled for the benefit of politicians' and bankers' pockets.
Daily access makes the role of private sector banks well-known to people. The same can not be said of public sector banks because projects like building industrial parks aren't common experience. It's easy for people to see the corruption of public sector banks without considering the fiscal aid they provide along with bonds and insurances. It's not a serious issue for financially-advanced countries, but for less developed countries with limited foreign capital access, lack of comprehensive public financial instruments may greatly hinder industrial economic development and public welfare.
For example, during economic recessions, governments often encourage banks to perform risky lending to impacted businesses/households against liquidity trap and deficient demand. Private sector banks don't obey at all, and it's responsible to shareholders. Public sector banks backed by the government, on the other hand, can greatly improve the effectiveness of counter-cyclical policies.
The situation is especially dire for underdeveloped countries facing capital flight along with recessions. To make the case amiable to people, let's consider mortgage crisis. While private financing dries out for the poor and vulnerable, public sector banks may come to rescue. With public refinancing, debt restructuring, and public employment, a large number of households don't have to lose their home to banks due to financial crises produced by bankers' fraudulent profiteering practices that literally robbed financially vulnerable people of their earnings and prospects.
A economic recession doesn't have to be a gate to dystopia.
However, people are forgetful and politicians assisted by economists often prefer revolving doors to possible corruption charges. Public sector banks' role is greatly reduced in developed countries and neoliberalism is hard to reverse.
For public sector banks to return, they must avoid weaknesses like political corruption. Clean and clear regulation, transparent monitoring, communication to people, etc. all help against political abuse and neoliberalism. It remains uncertain if neoliberalism persists or the public sector returns.