National Promotional Banks in European Union: Definition and Business Models' Peculiarity

National Promotional Banks in European Union: Definition and Business Models' Peculiarity

DOI: 10.4018/978-1-5225-1845-7.ch001
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National Promotional Banks’ Role And Definition

Deutsche Bank (2015, p.1) argues that NPBs have gained a key place in the economic policy toolkit for over-coming cyclical and structural difficulties, in completing financial systems’ functioning. It expects that promotional banks will continue exerting an important role in the next years, due to their genuine mission focused on supporting structural economic changes and mitigating market failures. The European Association of Public Banks (2015a, p.4) observes that, in times of recession or financial and economic distress, promotional banks perform a beneficial lender of last resort function for the SMEs and companies.

A report launched by United Nations (2005, p.13) enumerates some issues which can be successfully addressed by NPBs when solving various forms of market failures, as follows: creating inclusive financial markets, boosting the development of financial system, acting as a catalyst for all the players in the business sector and private sources of capital, diminishing a country’s economic volatility. Griffith-Jones (2015, p.4), adds that NPBs help alleviating another form of market failure, represented by banks’ unwillingness to finance complex or expensive sectors of activity or investment projects due to their potential uncertainty regarding the future success rate and financial returns to be obtained. According to Svilan (2016, p.2), promotional banks, as a special segment of the broad financial sector, have been established with the fundamental aim of covering the market gaps which can be the result of asymmetric information, externalities and weak competition, by operating complementarily with other financial intermediaries and catalyzing long-term finance.

In a similar fashion, United Nations (2012, p.1) perceives NPBs as a viable alternative to commercial banks, as they target long-term social and economic welfare while the latter depict pro-cyclical lending patterns and a financial behavior oriented on short-term profitability.

The European Committee of the Regions (2016, p.4) concludes that promotional banks are valuable instruments for implementing the economic, structural and social policy of a country, but stresses that, for alleviating structural weaknesses in markets functioning, it is necessary a long-term, wide-ranging definition and interpretation of the market failures.

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