State-owned Banks as Competition Enhancers, or Another Way to Spill Taxpayers’ Money

We analyse the role of state-owned banks from the perspective of competition. Focusing on the market for mortgage loans in Switzerland, we address three questions: (i) Is the state-owned banks’ policy consistent with marginal cost pricing? (ii) Do state-owned banks charge relatively customer friendly interest rates? And (iii) is competition intensified by the conduct of state-owned banks. Based on a detailed database containing information at the individual bank level over the 1996-2001 period, the answer is: "No". ∗The views expressed here are the authors’ and do not necessarily reflect those of the Swiss National Bank. The usual disclaimer applies. Corresponding author: Robert Bichsel, Systemic Stability, [email protected], phone: +41 1 631 34 03, fax +41 1 631 81 09.