I would note that a bank owned by stockholders or even a family is answerable to those people who own stock (or the institution itself), whereas a government owned bank is answerable to…who? While non-government institutions are under government observation, many government entities are able to avoid this same scrutiny…

I understand that technically the government is answerable to the taxpayers/voters, in reality they often go out of their way to ensure the public has no idea what’s going on…

“Stated another way, do we expect unregulated private banks to operate better than state banks? If so, why?”

First, no unregulated private banks exist. Banking is one of the more heavily regulated businesses.

Second: Yes. Why? Because if they don’t operate better, they go out of business and the owners/investors lose all of their money. A truly unregulated bank could not expect to be bailed out by the government if it was failing.

Oops, Walter, I meant to respond to the previous post that included the FiveThirtyEight ranking of state corruption. Since I am on this one instead, I should add that out here in San Francisco, the idea of a city owned bank pops up from time to time here as well. It would be just as disastrous here, but more from the effect of a bank run by progressive ideology rather than outright Jersey style corruption.

The discussion in the piece is of New Jersey. Is New York corruption relevant?

But I do know about Carinthia, a small state in the similarly small Republic of Austria. Carinthia had (in 2015) about 560’000 inhabitants and a GDP of € ~18 billion (I use “billion” with the US-American meaning of the term, that is, 1 bn = 1’000’000’000).

The small clique of people who ran the country knew how to please their friends. In the ten years up to 2006, the state bank Hypo-Alpe-Adria undertook to guarantee every and any dubious “investment” in the Balkans that the politicians’ friends could come up with. …Oh, and all those mortgages backing all those hotels in Eastern Europe? They were denominated in Swiss Francs. So when the Swiss Franc went from 1.7:1 tonear-parity with the Euro, the jig was most emphatically up.

The truly astonishing part is this: Carinthia’s GDP at the height of all this was, see above, € ~18 bn. In 2006, the guarantees undertaken by H-A-A amounted to € ~24.7 bn, a third again more than the entire state’s annual economic output!

And if that is not bad enough: The entire annual budget of the state of Carinthia, whose politicians have caused the politics-controlled state bank to guarantee € ~24.7 bn, oscillated between € 2.1 bn and € 2.4 bn (2000–2008).

“If something cannot go on forever, it will stop,” as Herbert Stein said. Well, it didn’t. The federal government dug deep into taxpayers’ pockets and spent € ~15.7 bn to make good the losses (€ ~8 bn were covered by the fire-sale of everything not nailed down). Those € ~15.7 bn came out to 8% or so of Austria’s annual national budget, perhaps not quite what one has in mind when thinking of pocket change.

Oh, and in 2005, only three years earlier, a different state bank already went down the drain, helped by a large flush of taxpayer money. Yes, politicians forced the bank into bad lending, helped along by managers who loved the thought of futzing around with nary a chance of ever being held to account.

So who would think that creating a state bank might be a bad idea? …The taxpayers are going to hate it … but nobody cares about that.