Youssef, HodaHerrera, Santiago2013-01-282013-01-282013-01https://hdl.handle.net/10986/12179From 2008 to 2011, Egypt was hit by significant shocks, both global and country-specific. This paper assesses the impact of the resulting macroeconomic instability on the banking sector, and examines its role as a shock absorber. The Central Bank of Egypt accommodated the shocks by supplying liquidity to the market. The paper verifies a change in the fiscal regime from one in which the primary fiscal balance was used an instrument to stabilize the public debt ratio to one in which the policy instrument stopped playing that role and affected investors' assessment of the risk of holding public debt. This pattern suggests that fiscal conditions influenced exchange rate and price expectations originating a fiscal dominance situation in which the Central Bank could not control inflation. Hence, the Central Bank lacked functional independence in spite of its de jure independence, which underscores the importance of strengthening institutions that facilitate policy coordination and allow policy to be more predictable. The government also funds itself through non-market mechanisms, in a typical financial repression scheme. The paper estimates the revenue from financial repression at about 2.5 percent of gross domestic product in 2011, which together with the revenues from seignoriage add up to close to 50 percent of the budgeted tax revenues, indicating the need for an in-depth review of the governance of the public banks and the funding of public sector activities. Finally, the paper estimates the impact of shocks to macroeconomic variables on loan portfolio quality and bank capital.en-USCC BY 3.0 IGOADMINISTRATIVE CONTROLADMINISTRATIVE CONTROLSAGRICULTURAL CREDITALTERNATIVE FUNDINGASSET PRICESBALANCE OF PAYMENTSBALANCE OF PAYMENTS CRISISBALANCE SHEETBALANCE SHEETSBANK BRANCHESBANK DEPOSITBANK DEPOSITSBANK INTERMEDIATIONBANK LENDINGBANK LOANBANK PROFITABILITYBANKING LAWBANKING SECTORBANKING SECTOR DEVELOPMENTSBANKING SYSTEMBIDSBONDSBORROWING COSTSBUDGET CONSTRAINTBUDGET DEFICITCAPITAL ACCOUNTCAPITAL ADEQUACYCAPITAL BASECAPITAL FLOWCAPITAL FLOWSCAPITAL GAINSCAPITAL INFLOWCAPITAL INFLOWSCAPITAL OUTFLOWCAPITAL OUTFLOWSCAPITAL REQUIREMENTCAPITALIZATIONCASH FLOWCASH HOLDINGCASH HOLDINGSCENTRAL BANKCERTIFICATES OF DEPOSITCHECKSCOMMERCIAL BANKCOMMERCIAL BANK CREDITCOMMERCIAL BANKSCOMPETITIVE MARKETSCREDIBILITYCREDIT AVAILABILITYCREDIT EXPANSIONCREDIT GROWTHCREDIT RISKDEBT ISSUERDEBT LEVELDEBT LEVELSDEBT RATIODEBT SERVICEDEBTORSDEBTSDEFICITSDEMAND FOR CREDITDEPOSITDEPOSITSDEVELOPING COUNTRIESDEVELOPMENT BONDSDOMESTIC BANKSDOMESTIC CAPITALDOMESTIC CAPITAL MARKETSDOMESTIC CURRENCYDOMESTIC DEBTDUMMY VARIABLEEMERGING ECONOMIESEXCHANGE RATEFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL INSTITUTIONSFINANCIAL LIBERALIZATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SECTOR DEVELOPMENTSFINANCIAL SYSTEMFISCAL DEFICITFISCAL POLICYFIXED EXCHANGE RATEFOREIGN BANKFOREIGN CURRENCYFOREIGN INVESTORSFUTURE CREDITGLOBAL CAPITALGLOBAL CAPITAL MARKETSGOVERNMENT ACCOUNTSGOVERNMENT BONDSGOVERNMENT BORROWINGGOVERNMENT BUDGETGOVERNMENT DEBTGOVERNMENT EXPENDITURESGOVERNMENT PAPERGOVERNMENT REVENUESGOVERNMENT SAVINGSGOVERNMENT SECURITIESGOVERNMENT SPENDINGGROSS DOMESTIC PRODUCTHOLDINGHOLDINGSHOLDINGS OF GOVERNMENT SECURITIESIMPLICIT TAXIMPLICIT TAXESINCOME TAXINFLATIONINFLATION RATEINFORMATION TECHNOLOGYINSTRUMENTINSURANCEINSURANCE COMPANIESINTEREST COSTSINTEREST PAYMENTSINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETSINTERNATIONAL STANDARDSINVESTMENT BANKINVESTMENT IN GOVERNMENT SECURITIESINVESTMENTS IN GOVERNMENT SECURITIESISSUANCEJUDICIAL SYSTEMLABOR MARKETLEGAL FRAMEWORKSLIQUIDITYLIQUIDITY CRISESLOANLOAN PORTFOLIOLOAN QUALITYLOANABLE FUNDSLOCAL CURRENCYLOCAL INVESTORSLONG-TERM LOANSMACROECONOMIC ENVIRONMENTMACROECONOMIC INSTABILITYMACROECONOMIC VARIABLESMARKET BORROWINGMARKET FOR CREDITMARKET MECHANISMSMARKET YIELDSMATURITYMATURITY STRUCTUREMINIMUM CAPITAL REQUIREMENTSMONETARY POLICYMONEY MARKETMONEY SUPPLYMUTUAL FUNDSNATIONAL INVESTMENTNON-PERFORMING LOANSNONPERFORMING LOANSNPLOIL PRICESOPEN ECONOMYOPEN MARKETOUTSTANDING DEBTOWNERSHIP STRUCTUREPOLITICAL UNCERTAINTYPORTFOLIO QUALITYPOST OFFICEPOST OFFICE SAVINGSPRICE CHANGESPRICE STABILITYPRIVATE BANKSPRIVATE CREDITPRIVATE SECTOR CREDITPROBABILITY OF DEFAULTPRODUCTIVE INVESTMENTPRODUCTIVE INVESTMENTSPRUDENTIAL REGULATIONSPUBLIC BANKPUBLIC BANKSPUBLIC BUDGETPUBLIC DEBTPUBLIC DEBT HOLDINGSPUBLIC FINANCEPUBLIC FINANCESPUBLIC INVESTMENTPUBLIC SPENDINGREAL INTERESTREAL INTEREST RATESREGULATORY FRAMEWORKREPOREPO FACILITYRESERVERESERVE REQUIREMENTSRESERVESRETURNRETURNSRISK MANAGEMENTRISK OF DEFAULTSAVINGS ACCOUNTSSAVINGS DEPOSITSSAVINGS INSTRUMENTSSETTLEMENTSOCIAL CAPITALSOCIAL INSURANCE FUNDSOLVENCYSOVEREIGN ENTITIESSTATE BANKSSTOCK MARKETSTOCK MARKET INDEXSTRATEGIC INVESTORSUB-NATIONAL ENTITIESSUPPLY OF CREDITT-BILLT-BILL MARKETT-BILL RATET-BILL RATEST-BILLSTAXTAX RATETAX RATESTAX SYSTEMTRADE LIBERALIZATIONTRANSACTIONTRANSPARENCYWorld Bank10.1596/1813-9450-6314