Abstract
In 1983 Israeli bank shares collapsed following several years during which the bank had actively intervened to promote share prices and thereby contributed to a 300% rise in real terms. During the crisis the government assumed control of the banks, which they did not begin to sell back to the public until 1993. We compare 1993 bank share prices after the banks were partially re-listed on the stock market values were$10 billion lower than in 1983, a decline born by pre-crisis shareholders ($4 billion) and by taxpayers ($6 billion). Of this latter amount, two-thirds represent a transfer from the government to the shareholders, while approximately one-third represents an efficiency loss- and hence a direct cost- resulting from government ownership of the banks for 10 years following the crisis. The results highlight the risk inherent in a banking system that is both concentrated and universal and illustrates the costs associated with sustained government ownership.
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