Open Knowledge Repository

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Bank Governance
(World Bank, Washington, DC, 2010-03) Ard, Laura; Berg, Alexander
Principles of good governance have been a major component of international financial standards and are seen as essential to the stability and integrity of financial systems. Over the past 10 years much energy and attention have gone to improving the ability of company boards, managers, and owners to prudently navigate rapidly changing and volatile market conditions. So, how to explain the events of 2007-08? Many of the recent problems can be traced to flawed implementation of good principles and to behavior prompted by increasingly short-term performance horizons.
State Financial Institutions : Can They Be Relied on to Kick-Start Lending?
(World Bank, Washington, DC, 2010-01) Rudolph, Heinz P.
The need to kick-start lending to the real sector in response to the global financial crisis is leading many countries to expand the role of state-owned financial institutions. The effectiveness of the support by these institutions depends in large part on the nature of the shock, on their ability to leverage private commercial banks to scale up their impact, and on the existence of a sound institutional framework. While it is too early to evaluate their effectiveness, past experience with the use of such institutions is sobering. Whether countries will heed the les sons of this experience remains to be seen.
The Leverage Ratio : A New Binding Limit on Banks
(World Bank, Washington, DC, 2009-12) D'Hulster, Katia
Excessive leverage by banks is widely believed to have contributed to the global financial crisis. To address this, the international community has proposed the adoption of a non-risk-based capital measure, the leverage ratio, as an additional prudential tool to complement minimum capital adequacy requirements. Its adoption can reduce the risk of excessive leverage building up in individual entities and in the financial system as a whole. The leverage ratio has inherent limitations, however, and should therefore be considered as just one of a set of macro- and micro-prudential policy tools.
Macro-Prudential Regulation
(World Bank, Washington, DC, 2009-07) Persaud, Avinash
This is not the first international banking crisis the world has seen. The previous ones occurred without credit default swaps, special investment vehicles, or even credit ratings. If crises keep repeating themselves, it seems reasonable to argue that policy makers need to carefully consider what they are doing and not just 'double up' by superficially reacting to the specific features of today's crisis. While we cannot to prevent crises, we can perhaps make them fewer and milder by adopting and implementing better regulation in particular, more macro-prudential regulation.
Trust Less, Verify More
(World Bank, Washington, DC, 2009-07) Briault, Clive
Financial supervision will need to change in response to the causes of the financial crisis and the regulatory proposals arising from it. Supervisors will need to take a tougher and more challenging approach to the firms they regulate, exercise more supervisory judgment, involve themselves in macro-prudential oversight, and participate more actively in the supervision of firms with cross-border activities. Supervisors in all countries need to take up these challenges, notwithstanding differences in the style of supervision, in culture and legal tradition, in institutional and organizational structure, and in the powers and resources available to the supervisory agency.
Blanket Guarantees
(World Bank, Washington, DC, 2009-06) Feyen, Erik; Vittas, Dimitri
The expansion of deposit insurance and introduction of debt guarantees have played a crucial role in containing the financial crisis while giving governments time to develop suitable policy responses. But these measures do not address the root causes of the crisis, and they lead to competitive distortions, moral hazard, and large fiscal contingent liabilities. Rolling them back is likely to require an internationally coordinated effort and an answer to the important question, 'exit to what?'