Saturday 23 July 2011

Caixa Geral de Depósitos

Quite surprisingly, the appointment of a new administration for the state-owned banking corporation CGD has emerged as priority. CGD operates in a highly regulated industry. The Bank of Portugal is the regulator. CGD is the largest bank in Portugal. The government selects the one who regulates to manage the one who is regulated. Economists call this the revolving door problem in regulation. Hundreds of papers in the economics of regulation and public choice address the perverse effects of the revolving door behavior in politics. Nobody in Portugal, but literally nobody seems to be worried about it. Remarkable! More remarkable when there have been accusations of regulatory failure against the Bank of Portugal (due to BPN and BPP scandals a couple of years ago).

1 comment:

  1. The regulatory failures in Portugal are modest when compared to the other "home rule" Central Banks, namely, Bundesbank, Bank of England and Bank of France, who allowed their banks and investors to over-extend credit to weak borrowers just because they had joined the Single Currency.