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How to Build a Patient Investment Bank

Summary:
If they are well structured and governed, public investment banks can be powerful catalysts for investment-led growth. But governments that establish such institutions should adhere to four guidelines. LONDON – The global financial crisis showed that plentiful finance can generate growth that is not necessarily sustainable or socially useful. Since then, the assets of the global banking sector have increased by some trillion, and yet there is still not enough sustainable growth. Why? Jose Luis Pelaez Inc/Getty Images Wojtek Radwanski/AFP/Getty Images Previous Next The short answer is that finance is not “neutral.” There is a big

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If they are well structured and governed, public investment banks can be powerful catalysts for investment-led growth. But governments that establish such institutions should adhere to four guidelines.

LONDON – The global financial crisis showed that plentiful finance can generate growth that is not necessarily sustainable or socially useful. Since then, the assets of the global banking sector have increased by some $40 trillion, and yet there is still not enough sustainable growth. Why?

The short answer is that finance is not “neutral.” There is a big difference between financing investment in the real economy and speculative finance that prioritizes short-term capital gains from trading existing assets. We need more of the former, and less of the latter.

With countries around the world facing major challenges, from climate change to aging populations, we urgently need new ways to finance smart, inclusive, and sustainable investment. Well-designed public investment banks are one such solution.

Investing in new and innovative areas is risky, and the private sector will often not commit until future returns become more certain. As a result, public institutions have traditionally played an important role in providing patient, long-term finance. From technological breakthroughs such as the Internet to environmental challenges such as the fight against climate change, public financing has enabled some of our greatest endeavors.

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