Publication: Smaller but Safer?
Loading...
Published
2009-06
ISSN
Date
2012-08-13
Author(s)
Editor(s)
Abstract
Global trends taken for granted in recent decades, the big expansion in global financial assets compared with underlying economic activity, growing global financial integration, shrinking role of the state in financial systems, and rising share of cross-border ownership of financial institutions, may reverse over the foreseeable future. In addition, the structure of financial systems, particularly in developed countries, will likely become oriented less toward capital markets and more toward traditional (and simpler) banking activities. The impact on economic growth and overall welfare is likely to be negative, perhaps the price author have to pay for living in a brave new (and presumably safer) financial world.
Link to Data Set
Citation
“Stephanou, Constantinos. 2009. Smaller but Safer?. Crisis Response Note; No. 3. © World Bank. http://hdl.handle.net/10986/10247 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Financial Development in Asia : Beyond Aggregate Indicators(World Bank, Washington, DC, 2014-01)This paper documents the major trends in financial development in Asia since the early 1990s and the spillovers to firms. It compares Asia with advanced and emerging countries and uses both aggregate and disaggregate indicators. Financial systems in Asia remain less developed than in advanced countries but more developed than in Eastern Europe and Latin America. Bond and stock markets play a larger role and institutional investors have gained importance. Nonetheless, capital-raising activity has not expanded. A few large companies capture most of the issuances. Many secondary markets remain illiquid. The public sector captures a significant share of bond markets. The largest advancements in Asia occurred in China and India. But still in these countries, few large companies use capital markets to expand and grow, becoming much larger than nonuser firms. In sum, Asia's financial systems remain less developed than aggregate measures suggest, with few spillovers to many firms.Publication Macro-Prudential Regulation of Credit Booms and Busts : The Case of Poland(2011-10-01)The last several years before the global downturn of 2008-2009 saw rapid credit growth in Poland. The credit-to-gross domestic product ratio rose from about 25 percent in 2004 to close to 50 percent in 2009. Such an expansion itself might potentially be a source of risks to financial stability, but it was also coupled with relatively new phenomena, such as massive foreign currency lending. Thanks to the pro-active attitude of the Polish authorities and sound economic fundamentals, the risks largely have not materialized. Since 2006 the financial supervisor has addressed in its recommendations for banks the problem of foreign exchange lending, which contributed to the high quality of the portfolio. Before the economy slowed down, the Polish Financial Supervisory Authority persuaded banks to accumulate an additional capital buffer that helped protect them from the negative consequences of the downturn. Some regulatory concepts that had been put into place in Poland in the previous years, including quantitative liquidity requirements, are now being implemented globally. The Polish Financial Supervisory Authority participates in international debates on a new regulatory regime for the financial system. The major message the authority intends to convey is that all new regulations must be tailored carefully. Regulators should make an effort to ensure that the benefits of enhanced quality of the capital base or the countercyclical buffer are not compromised by international overregulation that could undermine national authorities' ability to pursue effective country-specific policies.Publication Innovative Financing for Development(Washington, DC : World Bank, 2009)In the run-up to the 'follow-up international conference on financing for development' to be held in Doha from November 28 to December 2, 2008, it seems particularly timely to collect in one book writings on the various market-based innovative methods of raising development finance. Although developing countries are well advised to use caution in incurring large foreign debt obligations, especially of short duration, there is little doubt that poor countries can benefit from cross-border capital whether channeled through the public or private sectors. The papers in this book focus on various recent innovations in international finance that allow developing countries to tap global capital markets in times of low risk appetite, thereby reducing their vulnerability to booms and busts in capital flows. Debt issues backed by future hard currency receivables and diaspora bonds fall into the category of mechanisms that are best described as foul-weather friends. By linking the rate on interest to a country's ability to pay, Gross Domestic Product (GDP)-indexed bonds reduce the cyclical vulnerabilities of developing countries. Furthermore, these innovative mechanisms perm lower-cost and longer-term borrowings in international capital markets. Not only do the papers included in this book describe the innovative financing mechanisms; they also quantify the mechanisms' potential size and then identify the constraints on their use. Finally, the papers recommend concrete measures that the World Bank and other regional development banks can implement to alleviate these constraints. Economists have analyzed the feasibility and potential of using various tax-based sources of development finance in the context of meeting the millennium development goals. This has given rise to a new discipline of global public finance. This book complements those efforts by focusing on market based mechanisms for raising development finance.Publication Financial Development : Structure and Dynamics(2011-10-01)This paper analyzes the bright and dark sides of the financial development process through the lenses of the four fundamental frictions to which agents are exposed -- information asymmetry, enforcement, collective action, and collective cognition. Financial development is shaped by the efforts of market participants to grind down or circumvent these frictions, a process further spurred by financial innovation and scale and network effects. The analysis leads to broad predictions regarding the sequencing and convexity of the dynamic paths for a battery of financial development indicators. The method used also yields a robust way to benchmark the financial development paths followed by individual countries or regions. The paper explores the reasons for path deviations and gaps relative to the benchmark. Demand-related effects (past output growth), financial crashes, and supply-related effects (the quality of the enabling environment) all play an important role. Informational frictions are easier to overcome than contractual frictions, not least because of the transferability of financial innovation across borders.Publication Accounting for Growth in Latin America and the Caribbean : Improving Corporate Financial Reporting to Support Regional Economic Development(Washington, DC: World Bank, 2010)In the Latin America and Caribbean (LAC) region, as in the rest of the world, reliable financial information is the cornerstone of a robust market economy and efficient public sector. This book presents both an analysis of the broader trends derived from the individual country-level studies produced under the Report on the Observance of Standards and Codes (ROSC) Accounting and Auditing (A&A) program and a synthesis of lessons learned from the Bank's experiences working with policy makers and other stakeholders to implement the ROSC A&A recommendations. This first chapter introduces the book by showing how sound A&A practices in the private and public sectors contribute to LAC development agenda, and by describing the regional economic context. It then presents three case studies of successful financial reporting and auditing reforms within LAC, showing how these reforms have benefited the countries. It describes drivers of reform that have led some countries to adopt global standards of good A&A practice and others to take a more conservative, wait and see approach. Finally, the chapter describes the objectives and methodology of this study, and the structure of the book.
Users also downloaded
Showing related downloaded files
Publication Measuring the Performance and Achievement of Social Objectives of Development Finance Institutions(World Bank, Washington, DC, 2008-02)This paper develops and tests a proposed methodology that puts forward a new integrated method for evaluating the performance of development finance institutions. This methodology applies assessment criteria that take into account both the social objective that the development finance institution addresses and the subsidies it received in order to achieve such an objective. This methodology is applied to two pilot case studies-Banadesa (Honduras) and Banrural (Guatemala). The authors calculate the previously tested subsidy dependence index, which measures the degree of an institution's subsidy dependence. The paper develops and estimates a new measure-the output index- which indicates the level to which the institution fulfills the social objectives of the state. The analysis integrates the subsidy dependence index and the output index to assess the effectiveness associated with meeting the social objective. The findings suggest that the integration of the two indexes can constitute the basis of a meaningful evaluation framework for the performance of development finance institutions. This new methodology can also be a useful metric for policy makers who are seeking to decide on an optimal allocation of scarce funds for development finance institutions that pursue social goals and for management that seeks improved performance outcomes.Publication Strengthening the Governance and Performance of State-Owned Financial Institutions(World Bank, Washington, DC, 2007-08)Corporate governance arrangements define the responsibilities, authorities and accountabilities of owners, boards of directors, and executive managers of a company. Good corporate governance is as important for state financial institutions as for private sector companies. Many of the problems that commonly afflict state financial institutions can be associated with, if not attributed directly to, weaknesses in corporate governance. This note draws on guidelines recently published by the OECD and the Basel Committee for Banking Supervision to compile a comprehensive corporate governance evaluation framework relevant to state-owned commercial and development finance institutions. It highlights aspects of this framework that are considered to be of particular importance to state financial institutions by citing innovative practices in a number of countries. Finally, it presents a detailed case study of the governance arrangements in place at the Development Bank of Southern Africa.Publication Global Survey of Development Banks(2012-02-01)Historically, development banks have been an important instrument of governments to promote economic growth by providing credit and a wide range of advisory and capacity building programs to households, small and medium enterprises, and even large private corporations, whose financial needs are not sufficiently served by private commercial banks or local capital markets. During the current financial crisis, most development banks in Latin America, followed by Asia, Africa, and Europe, have assumed a countercyclical role by scaling up their lending operations exactly when private banks experienced temporary difficulties in granting credit to the private sector. Despite the importance of development banks during crisis and non-crisis periods, little is known about them. This survey examines how development banks operate, what their policy mandates are, what financial services they offer, which type of clients they target, how they are regulated and supervised, what business models they have adopted, what governance framework they have, and what challenges they face. It also examines the countercyclical role played by development banks during the recent financial crisis. This survey is based on new data that have been collected from 90 national development banks in 61 countries.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication The Political Economy of Distress in East Asian Financial Institutions(World Bank, Washington, DC, 2000-01)Politics and regulatory capture can play an important role in financial institutions distress. East Asia's financial crisis featured many distressed and closed financial intermediaries in an environment with many links between government, politicians, supervisors, and financial institutions. This makes the East Asian financial crisis a good event for studying how such connections affect the resolution of financial institutions distress. The authors investigate distress and closure decisions for 186 banks and 97 non-bank financial institutions in Indonesia, the Republic of Korea, Malaysia, the Philippines, and Thailand. They find that after July 1997, 42 percent of the institutions experienced distress (were closed, merged, or re-capitalized, or had their operations temporarily suspended). By July 1999, 13 percent of all institutions in existence in July 1997 had been closed. Using financial data for 1996, the authors find that: 1) Traditional CAMEL-type variables - returns on assets, loan growth, and the ratio of loan loss reserves to capital, of net interest income to total income, and of loans to borrowings - help predict subsequent distress and closure. 2) None of the foreign-controlled institutions were closed, and foreign portfolio ownership lowered an institutions probability of distress. 3) Connections - with industrial groups of influential families - increased the probability of distress, suggesting that supervisors had granted forbearance from regulations. Connections also made closure more, not less, likely - suggesting that the closure processes themselves were transparent. 4) But larger institutions, although more likely to be distressed, were less likely to be closed, while (smaller) non-bank financial institutions were more likely to be closed. This suggests a too big to fail policy. 5) These policies, together with the fact that resolution processes were late and not necessarily comprehensive, may have added to the overall uncertainty and loss of confidence in the East Asian countries, aggravating the financial crisis.