Government, Financial Institutions and the Global Financial Crisis
Forced to bail out an industry too strategically important to fail systemically, government is firmly inside the financial services tent where it is set to remain for a considerable time.
The complexity of individual financial institutions’ situations, difficult market conditions and an unattractive disposal environment combine to make the possibility of early government exit from their stakes in the private sector highly unlikely. It will take two to three years to sell major holdings, but five to seven years or more before governments are able to fully divest of their stakes and related guarantees.
Given that temporary state ownership will stretch into the medium term, governments should not waste this opportunity for reform. They must clearly define their objectives, focus on taking a positive role and navigate three key public policy challenges:
- Government must seek to be ‘good owners’, focusing on wider social and economic objectives as well as narrow financial goals as shareholders;
- They must rebuild the confidence and trust that are essential for the financial system to function efficiently; and
- They must put in place credible plans to address financial deficits.
