In addition, we include, on a case-by-case basis, a few deposit-taking banks that meet the five qualification criteria, even though deposit-taking may be conventionally regarded as a core feature of commercial banks. After a thorough analysis and justification, we include banks taking deposits from specific customers, in the process of diversification of sources of funds, and deposits for guarantees or security purposes, or that take individual accounts for the purpose of financial inclusion in poor regions where private banks are not active. For instance, some public banks have the mandate to enhance financial inclusion by setting up branches in underdeveloped regions of their own country, such as the Banco de Fomento Agropecuario in El Salvador. This is certainly a public concern and a priority for social equality. It is of particular interest that these types of banks should be identified and supported in their struggle for more social SDGs.
2.5. Government steering Government support is certainly a common feature expected for all PDBs and DFIs, yet the criterion of government support is too loose to help distinguish PDBs and DFIs from those market-oriented financial institutions that receive government support to perform a policy function on an ad hoc basis. For instance, state-owned commercial banks, private commercial banks, microfinance institutions, and cooperative banks, which are not PDBs, also finance SMEs. Because promoting SME financing is often regarded as a public policy objective, given the importance of SMEs and the severity of credit constraints owing to information asymmetry and lack of collateral, governments may provide policy support to incentivize private commercial banks to undertake more SME financing, without needing to create their own SME bank. To strengthen this criterion of government support, the key is to identify concrete evidence that the government can play a steering role in setting their corporate strategies so that PDBs and DFIs can operate in the public interest to address market failures or incubate markets that drive their mandate. The most straightforward operational indicator is for the government to hold a majority of the capital and therefore control the board, nominate the CEO, and validate the overall strategies of PDBs and DFIs. However, government steering can be achieved via other means, such as guaranteed bond-issuing, low-interest or interest-free loans, liquidity guarantees, and preferential tax treatment. History shows that formal shareholding is not necessarily the only means by which governments can shape boards’ decision-making. In the wake of World War II, the World Bank Group (WBG) supported the establishment of dozens of privately owned development finance companies (DFCs) with government support to provide industrial finance and foster entrepreneurship. DFCs are often privately owned but fulfill public policy objectives. The WBG allocated a substantial amount of its resources via these DFCs. Although governments did not formally own these DFCs, they provided lines of credit without a date of repayment that acted as equity capital. Hence, these DFCs were regarded as quasi-government institutions (Diamond 1965; 1968; 1973; 1974).
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