Karolina Ekholm, Deputy Governor of the Riksbank: "A financial market that fosters sustainable growth"
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Karolina Ekholm, Deputy Governor of the Riksbank: "A financial market that fosters sustainable growth"

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A preesentation held by Ms Karoliina Ekholm, deputy governor of the Swedish Riksbank, at the high level seminar "Towards a sustainable financial system", hosted by the Stockholm based Think Tank ...

A preesentation held by Ms Karoliina Ekholm, deputy governor of the Swedish Riksbank, at the high level seminar "Towards a sustainable financial system", hosted by the Stockholm based Think Tank Global Challenge in cooperation with London School of Economics and The Swedish House of Financie on the 12th of September

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Karolina Ekholm, Deputy Governor of the Riksbank: "A financial market that fosters sustainable growth" Karolina Ekholm, Deputy Governor of the Riksbank: "A financial market that fosters sustainable growth" Presentation Transcript

  • Karolina Ekholm, Deputy Governor 12 September, 2013 How to incentivize the financial system to support investments in the real economy…
  • Karolina Ekholm, Deputy Governor 12 September, 2013 …or… How to create a stable financial system that fosters economic growth?
  • Does financial development promote growth? GDP per capita and financial development Source: Phillippon and Reshef, “An international look at the growth of Modern
  • Maybe only up to a point… Private credit to GDP and growth Source: Cecchetti and Kharroubi, ”Reassessing the impact of finance on growth”, 2012
  • Regulatory reform leads to changes in the financial sector Regulatory reform Enhance d financial stability More and better capital Stronger liquidity framework More transparency Systemic risk perspective A more sustain- able financial system Stronger real economy
  • Decline in investments to GDP in advanced economies… Gross capital formation, per cent of GDP Source: IMF World Economic Outlook April 2013 15 17 19 21 23 25 27 29 31 33 15 17 19 21 23 25 27 29 31 33 92 94 96 98 00 02 04 06 08 10 12 Major advanced economies Euro area Other advanced economies Emerging markets
  • …accompanied by decline in corporate credit to GDP Credit to non-financial corporations, per cent of GDP 60 70 80 90 100 110 120 130 00 01 02 03 04 05 06 07 08 09 10 11 12 Euro area UK US Japan Source: BIS Banking Statistics
  • Decline in bank lending to corporations in the euro area Corporate lending in the euro area, annual percentage change Source: ECB SDW Note. Core represents Germany, Netherlands and France
  • Stricter supply and less demand for corporate loans in the euro area Weighted net percentages, dotted lines: forward looking Source: ECB Lending Survey
  • Does higher capital requirements have a negative effect on growth?  Yes, is the typical response from banks.  No, according to Admati and Hellwig (2013).  The only problem is that shareholders are reluctant to issue new equity because it would benefit creditors at the expense of shareholders.  Maybe, according to Aghion (2013).  They may inhibit lending to firms in sectors with lower asset tangibility, which are typically the most innovative ones.
  • Conclusions  A larger financial sector is not necessarily better from a long-run growth perspective.  The current low levels of investment and corporate lending in advanced economies are probably mainly due to expectations of a weak development of demand.  They should not be used as arguments for watering down proposals of financial sector reform.  Such reform is needed to making the aggregate economy resilient to large adverse shocks.
  • Extra
  • Decline in private sector debt Private non-financial sector debt, per cent of GDP Source: BIS 83rd Annual Report, 2012-2013
  • Low growth of loans to private non- financial sector Annual percentage change Source: BIS
  • Global imbalances hold back global demand Current accounts, per cent of world GDP Source: IMF World Economic Outlook April 2013 -3 -2 -1 0 1 2 3 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 US Germany and Japan Euro area ex Germany Developing Asia Middle East and North Africa Other advanced economies Other economies Discrepancy
  • Different views about the balance between debt vs equity 1 3 2 1 32 Source: Anat Admati, What’s wrong with banking and what to do about it, 2013
  • Financial crises have large negative impacts on GDP per capita JapanUS UK Korea Mexico Sweden Source: BIS
  • MFI lending to households and corporations in Sweden Per cent, July 2013 Sources: SCB and the Riksbank