State ownership and bank equity in the Asia-Pacific region

Our study examines the effectiveness of worldwide banking regulations and government involvement in providing a balanced risk–reward trade-off to bank shareholders during both normal time periods and the periods of financial crisis. Ownership structure varies across world regions with government holding bigger stakes in the Asia-Pacific region and Latin America than in North America. Partial state ownership of banks, particularly in the Asia-Pacific region, helped avoid sharp losses during financial crises without sacrificing returns in normal periods. The restrictions on the types of activities reduce bank riskiness and wealth losses during the crisis period but they also stifle innovations and returns during normal time periods.

► We study the effects of worldwide bank regulations and partial state ownership. ► Governments hold bigger stakes in the Asia-Pacific region and Latin America. ► State ownership stake boosts stock returns during crises and normal times. ► Restrictions on activities reduce crisis losses but also normal period return.