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One issue with this debate is that the question as asked generates the answer. Even those of us who are painfully aware of the impressive body of evidence showing the damage done by state banks -- the misallocation of capital, discrimination against SMEs, lending to SOEs, high overhead costs, etc -- know as well that this is not always the result. It is possible that SOBs could provide some stabilizing role and some outreach into less populated areas. So of course SOBs CAN play a positive role, it is just that the likelihood of that happening are remote. Even Germany has begun reducing its reliance on state banks, having found that these are too expensive for what they contribute. The crisis does not change this calculus. Rather, the crisis taught us that when regulations are not enforced and absurd incentives are allowed to take over the sector, the result is a crisis. We have learned that lesson before. Note that Meir Kohn has nicely recounted that the wave of public banks in medieval times was in response to the failures of private banks. The result: virtually all of the public banks failed!