The Global Financial Development Report 2013 is the first in a new World Bank series that examines the role of the state in financial development. It provides novel data, surveys, research, and analysis on financial sectors, with an emphasis on emerging markets and developing economies. The report finds that states should provide strong regulation and supervision of financial markets while also ensuring competition. Direct interventions by states such as lending by state-owned banks may be harmful. The report also contains extensive online datasets and background materials to inform policymakers seeking to develop financial systems in a stable, inclusive manner.
Evaluacion del fmi deficiencia de capital de la banca espanolaneiracar
El FMI ha adelantado tres días la publicación de su informe sobre la deficiencia de capital de la banca española para calmar el ambiente. Se pronuncia por una cifra de 40,000 millones de euros , pero cuando uno lee la letra menuda podría ser bastante más. Parece como que hay que ayudar a la gente a hacerse a la idea poco a poco .Lo cual en mi opinión es una soberana metida de pata.
Yo me aferro a mi tesis de que siempre se empiece con números bajos y se acaba con grandes cifras. Mi pronóstico es que cuando de acaben de hacer todas las sumas y restas , el total andará por los 300.000 millones de euros
Leer más: http://blogs.semanaeconomica.com/blogs/el-nuevo-sol/posts/fmi-sobre-la-banca-espanola-se-necesitan-por-lo-menos-40-000-millones#ixzz1xGlfaDvu
Haiti" World Bank Public Expenditure Management and Financial Accountability ...Stanleylucas
World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and to facilitate its dialogs with the governments. Some of the reports are published in this series with the least possible delay for the use of governments, and the academic, business, financial, and development communities. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally- edited texts. Some sources cited in this paper may be informal documents that are not readily available.
The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent.
The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank of the legal status of any territory or the endorsement or acceptance of such boundaries.
Evaluacion del fmi deficiencia de capital de la banca espanolaneiracar
El FMI ha adelantado tres días la publicación de su informe sobre la deficiencia de capital de la banca española para calmar el ambiente. Se pronuncia por una cifra de 40,000 millones de euros , pero cuando uno lee la letra menuda podría ser bastante más. Parece como que hay que ayudar a la gente a hacerse a la idea poco a poco .Lo cual en mi opinión es una soberana metida de pata.
Yo me aferro a mi tesis de que siempre se empiece con números bajos y se acaba con grandes cifras. Mi pronóstico es que cuando de acaben de hacer todas las sumas y restas , el total andará por los 300.000 millones de euros
Leer más: http://blogs.semanaeconomica.com/blogs/el-nuevo-sol/posts/fmi-sobre-la-banca-espanola-se-necesitan-por-lo-menos-40-000-millones#ixzz1xGlfaDvu
Haiti" World Bank Public Expenditure Management and Financial Accountability ...Stanleylucas
World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and to facilitate its dialogs with the governments. Some of the reports are published in this series with the least possible delay for the use of governments, and the academic, business, financial, and development communities. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally- edited texts. Some sources cited in this paper may be informal documents that are not readily available.
The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent.
The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank of the legal status of any territory or the endorsement or acceptance of such boundaries.
The $260,000 Question: The Future of Higher Education Funding as it Relates t...Michael Yu
During the Spring 2016 semester, three classmates and I prepared this report for the course Foresight in Business and Society. This report analyzes the rise of Income Sharing Agreements as an alternative to traditional college financing. The discussion considers important milestones in ISAs, major issues presently faced, and considers various potential scenarios. Finally, the scenario implications are drawn out in order to emphasize the financing landscape ten years from today.
'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.'
What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
These questions are discussed in the new paper by Marek Dabrowski: "Fiscal Sustainability: Conceptual, Institutional, and Policy Issues".
The publication is a part of CASE Working Papers series.
Syz & co syz asset management - market outlook 27 february 2013SYZBank
After a start to the year buoyed by optimism, the last few weeks have been characterized by a kind of “reality check” which does not necessarily call into question the macro-economic outlook, but which reminds us that not everything can be wiped clean by floods of liquidity.
At EY Professional Practice we developed a helpful guide to applying Article 11 of Regulation S-X in preparing pro-forma financial information. Refer to it for registration statements and current reports filed with the SEC.
Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers an...Joannes Mongardini
IMF Working Paper WP/16/87 providing macroprudential simulations of the effectiveness of countercyclical buffers and loan-to-value limits to mitigate housing bubbles and bursts
Piotr Kozarzewski and Maciej Bałtowski analyse the causes and manifestations of this trend in economic policy in Poland. They use privatization policy as an example. The authors examine the effects of the privatization policy and point to a large unfinished agenda in ownership transformation that has had an adverse impact on the institutional setup of the Polish state, creating grounds for rent seeking and cronyism, which, in turn, impede the pace of privatization. They find out that it is the increasing capture of the state by rent-seeking groups, and not, contrary to popular opinion, the global financial crisis, that most contributes to the growing statist trends of Poland’s economic policy.
Ekonomiska Utsikter, Nordea, September 2010Nordea Bank
Stark svensk ekonomi i särklass: Sveriges ekonomi varvar upp och närmar sig snabbt ett normalt konjunkturläge. Resursutnyttjandet stiger och arbetslösheten viker tydligt nedåt. Den höga tillväxten avtar nästa år för att åter accelerera 2012, enligt Nordeas konjunkturrapport.
This paper presents two models of key determinants in the evolution of the shadow banking system. First of all, a shadow banking measure is built from a European perspective. Secondly, information on several variables is retrieved basing their selection in previous literature. Thirdly, those variables are grouped in: 1) the base model: real GDP, Institutional investors’ assets, term-spread, banks’ net interest margin and liquidity; and 2) the extended model: the former five plus an indicator of systemic stress, an index of banking concentration and inflation. Finally, regression analysis on those models is conducted for different countries’ samples. Both OLS and panel data analysis is undergone. Results suggest important and consistent geographical differences in relations between shadow banking and key determinant variables’ effects. Thus, this essay provides financial authorities with a valuable benchmark to which they should pay attention before designing optimal policies seeking to reduce the financial risk that shadow banking entails.
The $260,000 Question: The Future of Higher Education Funding as it Relates t...Michael Yu
During the Spring 2016 semester, three classmates and I prepared this report for the course Foresight in Business and Society. This report analyzes the rise of Income Sharing Agreements as an alternative to traditional college financing. The discussion considers important milestones in ISAs, major issues presently faced, and considers various potential scenarios. Finally, the scenario implications are drawn out in order to emphasize the financing landscape ten years from today.
'Since 2008, the world economy has been facing the consequences of the global financial crisis. As a result, many economic policy paradigms have been revised, and this process is far from complete. The policy area, which needs a fundamental rethinking (especially in advanced economies), relates to the role of public finance and fiscal policy in ensuring economic growth and financial stability. The primary task will be to develop a new analytical approach and detailed indicators, which are necessary to provide a correct diagnosis and effective recommendations.'
What are the “safe” levels of budget deficit and public debt during “normal” or “good” times? Is there a single norm of fiscal safety?
These questions are discussed in the new paper by Marek Dabrowski: "Fiscal Sustainability: Conceptual, Institutional, and Policy Issues".
The publication is a part of CASE Working Papers series.
Syz & co syz asset management - market outlook 27 february 2013SYZBank
After a start to the year buoyed by optimism, the last few weeks have been characterized by a kind of “reality check” which does not necessarily call into question the macro-economic outlook, but which reminds us that not everything can be wiped clean by floods of liquidity.
At EY Professional Practice we developed a helpful guide to applying Article 11 of Regulation S-X in preparing pro-forma financial information. Refer to it for registration statements and current reports filed with the SEC.
Mitigating the Deadly Embrace in Financial Cycles: Countercyclical Buffers an...Joannes Mongardini
IMF Working Paper WP/16/87 providing macroprudential simulations of the effectiveness of countercyclical buffers and loan-to-value limits to mitigate housing bubbles and bursts
Piotr Kozarzewski and Maciej Bałtowski analyse the causes and manifestations of this trend in economic policy in Poland. They use privatization policy as an example. The authors examine the effects of the privatization policy and point to a large unfinished agenda in ownership transformation that has had an adverse impact on the institutional setup of the Polish state, creating grounds for rent seeking and cronyism, which, in turn, impede the pace of privatization. They find out that it is the increasing capture of the state by rent-seeking groups, and not, contrary to popular opinion, the global financial crisis, that most contributes to the growing statist trends of Poland’s economic policy.
Ekonomiska Utsikter, Nordea, September 2010Nordea Bank
Stark svensk ekonomi i särklass: Sveriges ekonomi varvar upp och närmar sig snabbt ett normalt konjunkturläge. Resursutnyttjandet stiger och arbetslösheten viker tydligt nedåt. Den höga tillväxten avtar nästa år för att åter accelerera 2012, enligt Nordeas konjunkturrapport.
This paper presents two models of key determinants in the evolution of the shadow banking system. First of all, a shadow banking measure is built from a European perspective. Secondly, information on several variables is retrieved basing their selection in previous literature. Thirdly, those variables are grouped in: 1) the base model: real GDP, Institutional investors’ assets, term-spread, banks’ net interest margin and liquidity; and 2) the extended model: the former five plus an indicator of systemic stress, an index of banking concentration and inflation. Finally, regression analysis on those models is conducted for different countries’ samples. Both OLS and panel data analysis is undergone. Results suggest important and consistent geographical differences in relations between shadow banking and key determinant variables’ effects. Thus, this essay provides financial authorities with a valuable benchmark to which they should pay attention before designing optimal policies seeking to reduce the financial risk that shadow banking entails.
This is the G-30 club that Volker used to chair. This is a publically available document, so hopefully SlideShare can figure that out and not remove it.
The purpose of this study is to analyze the sources of economic growth in Ukraine, which has been observed from the second half of 1999. In addition, we intend to answer the question what is the sustainability of this growth, i.e. putting in other words, what are the chances and conditions for maintaining growth in the future.
Authored by: Marek Dabrowski and Malgorzata Jakubiak
Published in 2003
The banking sector in transition economies deserves a special attention of policy makers and the public. The first reason for this attention is that financial intermediation plays a special role in an economy: it channels financial savings of enterprises and households into investments. There is no economic growth in a country if this function is not executed in an effective and efficient way, and if the financial sector is not credible. Therefore reestablishment of a sound banking sector has been crucially important for transition countries.
Authored by: Ewa Balcerowicz and Andrzej Bratkowski
Published in 2001
Dr Haluk F Gursel, A Monetary Base Analysis and Control ModelHaluk Ferden Gursel
This report is one of the first studies discussing monetary base analysis and control model, a concept even today is alive and more developed by, for example, by IMF to use its analysis. The study presents monetary base approach to control of money flows and the links between monetary base, money supply and monetary income. Further, the monetary policy problems of the developing countries are reviewed.
The research devotes a section to a developing country data application and analysis.
In developing countries, there are similar tendencies for many variables, although each country has different characteristics, economic and social structures. It follows that remedies can be broadly similar although applications will differ from country to
country. The outlined policies do not address themselves to the solution of all problems; however, the necessity for designing different policies fitting the special conditions of each country and the need for other policies complementary to monetary policies is apparent. Thus, the solutions suggested in conclusion should be considered as guidelines.
1. Global Financial Development Report 2013
Global Financial Development Report 2013 is the first in a new World Bank series. It provides a unique contribution to financial
sector policy debates, building on novel data, surveys, research, and wide-ranging country experience, with emphasis on
emerging-market and developing economies.
Development Report
The global financial crisis has challenged conventional thinking on financial sector policies. Launched on the fourth
anniversary of the Lehman Brothers collapse—a turning point in the crisis—this volume re-examines a basic question: what is
Global Financial
the proper role of the state in financial development? To address the question, this report synthesizes new and existing evidence
on the state’s performance as financial sector regulator, overseer, promoter, and owner. It calls on state agencies to provide
strong regulation and supervision and ensure healthy competition in the sector, and to support financial infrastructure, such as
the quality and availability of credit information. It warns that direct interventions—such as lending by state-owned
banks, used in many countries to counteract the crisis—may end up being harmful.
The report also tracks financial systems in more than 200 economies before and during the global financial crisis. Accompany-
ing the publication is a website (http://www.worldbank.org/financialdevelopment) that contains extensive datasets, research
Rethinking the
Role of the State in Finance
papers, and other background materials, as well as interactive features.
The report’s findings and policy recommendations are relevant for policy makers; staff of central banks, ministries of finance,
and financial regulation agencies; nongovernmental organizations and donors; academics and other researchers and analysts;
and members of the development community. 2013
Rethinking the Role of the State in Finance
ISBN 978-0-8213-9503-5
SKU 19503
12. x o n t e n t s
c GLOBAL financial DEVELOPMENT REPORT 2013
2.1 Examples of Weak Supervisory Capacity Identified in the FSAP. . . . . . . . . . . . . . . . 52
2.2 Differences between Crisis and Noncrisis Countries. . . . . . . . . . . . . . . . . . . . . . . . . 57
2.3 Summary of the Basel III Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.4 Summary of Selected Proposals for Regulatory Reform. . . . . . . . . . . . . . . . . . . . . . .69
B3.5.1 Competition in MENA and across Regions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
B3.6.1 Cross-Country Determinants of Banking Competition. . . . . . . . . . . . . . . . . . . . . . . 96
B4.4.1 Determinants of the Growth of Total Gross Loans. . . . . . . . . . . . . . . . . . . . . . . . . 110
B4.5.1 Credit Cycles and Government Ownership of Banks. . . . . . . . . . . . . . . . . . . . . . . . 113
5.1 Credit Reporting, Coverage by Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
B5.3.1 Bank Concentration and Credit Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
A.1 Countries and Their Financial System Characteristics, Averages, 2008–2010. . . . . 161
13. Foreword
T
he Global Financial Development The World Bank Group has been actively
Report comes at a time when the engaged in financial sector work for some
worldwide financial crisis has starkly time, aiming to help various parts of the insti-
highlighted the importance of financial sys- tutional mosaic—including regulation and
tems and their role in supporting economic supervision, corporate governance, and finan-
development, ensuring stability, and reducing cial infrastructure—ensure that the financial
poverty. sector contributes meaningfully to strong and
Finance matters, both when it functions inclusive growth. This report seeks to advance
well and when it functions poorly. Sup- the global financial sector policy debate,
ported by robust policies and systems, finance highlighting the important perspective of
works quietly in the background, contribut- emerging markets and developing economies.
ing to economic growth and poverty reduc- It contains a rich array of new financial sector
tion. However, impaired by poor sector data that are also publicly available as part of
policies, unsound markets, and imprudent our Open Data Agenda.
institutions, finance can lay the foundation Sharpening the focus on the central role of
for financial crises, destabilizing economies, finance in socioeconomic development and
hindering economic growth, and jeopardizing understanding how financial systems can be
hard-won development gains among the most strengthened are crucial if we are to realize
vulnerable. our goal of boosting prosperity and eradi-
Fostering sustainable financial develop- cating poverty. The Global Financial Devel-
ment and improving the performance of opment Report is an important step in this
financial systems depends on numerous insti- process.
tutional factors and stakeholders. The policy
maker, the regulator, the banker, and the Jim Yong Kim
financial consumer must all play their part. President
The World Bank Group
g l o b a l f i n a n c i a l d e v e l o p m e n t R EPO R T 2 0 1 3 xi
14.
15. Preface
T
he goal of this inaugural Global Finan- ideological views, instead aiming to develop
cial Development Report is to contrib- a more nuanced approach to financial sec-
ute to the evolving debate on the role tor policy based on a synthesis of new data,
of the state in the financial sector, highlighted research, and operational experiences.
from the perspective of development. The The report emphasizes that the state has a
report is aimed at a broad range of stakehold- crucial role in the financial sector—it needs to
ers, including governments, international provide strong prudential supervision, ensure
financial institutions, nongovernmental orga- healthy competition, and enhance financial
nizations, think tanks, academics, private sec- infrastructure. Regarding more direct inter-
tor participants, donors, and the wider devel- ventions, such as state ownership of banks,
opment community. The report offers policy the report presents new evidence that state
advice based on research and lessons from involvement can help in mitigating adverse
operational work. effects of a crisis. However, the report cau-
This marriage of research and operational tions that over longer periods, direct state
work was possible thanks to the engagement involvement can have important negative
of a diverse set of experts inside and outside effects on the financial sector and the econ-
the World Bank Group. The report reflects omy. Therefore, as crisis conditions recede,
inputs from Bank staff in a broad range of the evidence suggests that it is advisable for
units and collaboration with leading research- governments to shift from direct to indirect
ers on finance and development. Reflecting interventions.
the close links between financial develop- Because the financial system is dynamic
ment and stability, counterparts at the Inter- and conditions are constantly changing, regu-
national Monetary Fund have also provided lar updates are essential. Hence, this report
valuable contributions. should be seen as part of an ongoing project
The report benchmarks financial institu- aimed at supporting systematic evaluation,
tions and markets around the world, rec- improving data, and fostering broader part-
ognizing the diversity of modern financial nerships. Future reports might address finan-
systems. In its analysis of the state’s role in cial inclusion, the development of local cur-
finance, the report seeks to avoid simplistic, rency capital markets, the financial sector’s
g l o b a l f i n a n c i a l d e v e l o p m e n t R EPO R T 2 0 1 3 xiii
16. xiv r e f a c e
p GLOBAL financial DEVELOPMENT REPORT 2013
role in long-term financing, and the state’s and sound financial systems for robust eco-
role in financing health care and pensions. nomic performance.
We hope that this new series of analytical
reports will prove useful to all stakeholders in Mahmoud Mohieldin
promoting evidence-based decision making Managing Director
The World Bank Group
17. Acknowledgments
T
he 2013 Global Financial Develop- Christova, Margaret Miller, Leora Klapper,
ment Report reflects the efforts of a Shalini Sankaranarayan, Alban Pruthi, and
broad and diverse group of experts Thilasoni Benjamin Musuku (chapter 5).
both inside and outside the World Bank. The The report was prepared under the over-
report was cosponsored by the World Bank’s sight of Janamitra Devan, Vice President
Financial and Private Sector Development (FPD and IFC); Justin Yifu Lin, Chief Econo-
Vice Presidency (FPD) and the Development mist and Senior Vice President (DEC); and
Economics Vice Presidency (DEC). It reflects Martin Ravallion, Acting Chief Economist
inputs from World Bank Group staff across a and Senior Vice President (DEC). World
range of units, including all the regional vice Bank Presidents Robert B. Zoellick and Jim
presidencies, the Poverty Reduction and Eco- Yong Kim and Managing Director Mahmoud
nomic Management Network, and External Mohieldin provided overall guidance. The
Affairs, as well as staff of the International authors received invaluable advice from the
Finance Corporation (IFC). FPD Council (Aslı Demirgüç-Kunt, Augusto
Aslı Demirgüç-Kunt was the director of Lopez-Claros, Gaiv Tata, Gerardo Corro-
ˇ
this project. Martin Cihák led the core team, chano, Janamitra Devan, Klaus Tilmes, Loic
which included Cesar Calderón, Martin Chiquier, Marialisa Motta, Pierre Guislain,
Kanz, Subika Farazi, and Mauricio Pinzon Sujata Lamba, Tilman Ehrbeck, and Tunc
Latorre. Other key contributors were Erik Uyanik) as well as the World Bank–Interna-
Feyen (chapter 1); Maria Soledad Martínez tional Monetary Fund Financial Sector Liai-
˙
Pería (chapters 2, 3, and 4); Inci Ötker-Robe, son Committee.
Martín Vázquez Suárez, Miquel Dijkman, Peer reviewers of the report were Stijn
Valeria Salomao Garcia, R. Barry Johnston, Claessens, Augusto de la Torre, Ross Levine,
and Nicolas Véron (chapter 2); Thorsten Beck Norman Loayza, Roberto Rocha, and Tunc
and Klaus Schaeck (chapter 3); Marcin Piat- Uyanik. Luis Servén also reviewed the con-
kowski, Eva Gutierrez, José De Luna Mar- cept note. Comments on individual chapters
tinez, Carlos Leonardo Vicente (chapter 4); were also received from Aart Kraay, Ross
Ouarda Merrouche, Miriam Bruhn, Mas- Levine, Roberto Rocha, and Sergio Schmuk-
simo Cirasino, Marco Nicoli, Maria Teresa ler (chapter 1); Gerard Caprio, Patrick Hono-
Chimienti, Froukelien Wendt, Luchia Marius han, Alain Ize, Ross Levine, and Damodaran
g l o b a l f i n a n c i a l d e v e l o p m e n t R EPO R T 2 0 1 3 xv
18. xvi c k n o w l e d g m e n t s
a GLOBAL financial DEVELOPMENT REPORT 2013
Krishnamurti (chapter 2); Franklin Allen, assistance was provided by Hedia Arbi, Gra-
Thorsten Beck, Michael Fuchs, and Martha cia Sorensen, and Agnes Yaptenco. Other
Martinez Licetti (chapter 3); and Viral Acha- valuable assistance was provided by Benja-
rya, Charles Calomiris, Heinz Rudolph, and min Levine and Vin Nie Ong.
Sergio Schmukler (chapter 4). Aart Kraay Mauricio Pinzon Latorre and Subika
reviewed all chapters for consistency and Farazi were instrumental in compiling and
quality multiple times. updating the databases underlying the report.
The authors also received valuable sug- In so doing, they benefited from the work of
gestions and other contributions at various the current FinStats database team, which
stages of the project from Hormoz Aghadey, includes Katie Kibuuka and Diego Sour-
Shamshad Akhtar, Deniz Anginer, Mad- rouille, who in turn relied on key efforts from
elyn Antoncic, Zsofia Arvai, Steen Byskov, previous FinStats team members, including
Kevin Carey, Jeffrey Chelsky, Loic Chiquier, Ed Al-Hussainy, Haocong Ren, and Andrea
Gerardo Corrochano, Mariano Cortes, Rob- Coppola. Joanna Nasr, Mariana Carvalho,
ert Cull, Stefano Curto, Mansoor Dailami, and Zarina Odinaeva helped with the data
Katia D’Hulster, Maya Eden, Tilman Ehr- on the credit information systems used in
beck, Matthias Feldmann, Aurora Ferrari, chapter 5.
Manuela Ferro, Jose Antonio Garcia, Egbert The work on the 2011 update of the
Gerken, Swati Ghosh, David Gould, Neil Banking Regulation and Supervision Survey
Gregory, Mario Guadamillas, Pankaj Gupta, started with the collaboration of Maria Sole-
Mary Hallward-Driemeier, Darrin Hartzler, dad Martínez Pería, Roberto Rocha, Con-
Richard Hinz, Mustafa Zakir Hussain, Sujit stantinos Stephanou, and Haocong Ren. The
Kapadia, Isfandyar Khan, Thomas Kirch- survey benefited from contributions from
meier, Kalpana Kochhar, Rachel Kyte, Jeffrey numerous banking regulation experts in the
Lewis, Samuel Maimbo, Mariem Malouche, World Bank, including David Scott, Krish-
Cledan Mandri-Perrott, Claire Louise namurti Damodaran, Katia D’Hulster, Ced-
McGuire, Martin Melecky, Dino Merotto, ric Mousset, and others outside the World
Sebastian Molineus, Fredesvinda Montes, Bank, in particular, Michael Andrews and
Cedric Mousset, Nataliya Mylenko, Makoto Jan-Willem van der Vossen. Insights and
Nakagawa, Harish Natarajan, Aloysius Uche encouragement from Gerard Caprio, Ross
Ordu, Jorge Patiño, Jean Pesme, Tigran Pog- Levine, and James Barth, who organized
hosyan, John Pollner, Daniel Pulido, Hao- the previous rounds of the survey, are grate-
cong Ren, Ivan Rossignol, Heinz Rudolph, fully acknowledged. PKF (UK) and Auxilium
Consolate Rusagara, Andre Ryba, David helped with compiling and following up on
Scott, James Seward, Sophie Sirtaine, Con- the survey responses. Amin Mohseni pro-
stantinos Stephanou, Mark Stone, Vijay Tata, vided excellent research assistance on the
Marilou Uy, S. Kal Wajid, Juan Zalduendo, survey. Catiana Garcia-Killroy (FPD), Dilek
Laura Zoratto, and participants in seminars Aykut and Eung Ju Kim (both DEC), and
and briefings organized at the World Bank. Isabella Reuttner (World Economic Forum)
The report would not be possible with- provided helpful consultations on data. Tariq
out the production team, including Merrell Khokhar, Neil Fantom, Ibrahim Levent, and
Tuck-Primdahl and Nicole Frost, as well as William Prince were instrumental in integrat-
Stephen McGroarty, Santiago Pombo, Jose ing the report’s data with the World Bank’s
De Buerba, Jane Zhang, Ryan Hahn, Mary Open Data Initiative.
Donaldson, and Xenia Zia Morales. Aziz The authors would also like to thank the
Gokdemir was the production editor, with many country officials and other experts who
Debra Naylor as the graphic designer. Roula participated in the surveys underlying this
Yazigi assisted the team with the website report, including the Bank Regulation and
and communications. Paul Holtz was the Supervision Survey and the Financial Devel-
language editor. Excellent administrative opment Barometer.
19. GLOBAL financial DEVELOPMENT REPORT 2013 c k n o w l e d g m e n t s xvii
a
Financial support from State Secretariat Change program and the Research Support
for Economic Affairs (Switzerland) is grate- Budget provided funding for the underlying
fully acknowledged. The latest update of the research program in DEC. Frank Sader had
Bank Regulation and Supervision Survey and a key role in FPD’s fundraising efforts for the
related research was financed with financial Global Financial Development Report.
support from the U.K. Department for Inter-
national Development. The Knowledge for
External Advisers
Viral Acharya CV Starr Professor of Economics, New York University Stern School
of Business; Program Director for Financial Economics, Centre for
Economic Policy Research
Franklin Allen Nippon Life Professor of Finance and Professor of Economics at the
Wharton School of the University of Pennsylvania
Thorsten Beck Professor of Economics and Chairman of the European Banking
Center, Tilburg University, Netherlands
Charles Calomiris Henry Kaufmann Professor of Financial Institutions, Graduate School
of Business, Columbia University
Gerard Caprio William Brough Professor of Economics and Chair, Center for
Development Economics, Williams College
Stijn Claessens Assistant Director, Research Department, International Monetary Fund
Patrick Honohan Governor, Central Bank of Ireland
R. Barry Johnston Former Assistant Director, Monetary and Capital Markets
Department, International Monetary Fund
Ross Levine James and Merryl Tisch Professor of Economics; Director, William R.
Rhodes Center for International Economics and Finance, Department
of Economics, Brown University
Monica Rubiolo Head of Macroeconomic Support, State Secretariat for Economic
Affairs, Switzerland
Klaus Schaeck Professor of Empirical Banking, Bangor University
Nicolas Véron Senior Fellow, Bruegel Institute; Visiting Fellow, The Peterson Institute
for International Economics
The report also benefited from suggestions and insights from country officials and other
experts participating in the Financial Development Barometer and the other surveys and dis-
cussions underlying this report. The findings, interpretations, and conclusions expressed in this
report do not necessarily reflect the views of the advisers or institutions with which they are
affiliated.
20. xviii c k n o w l e d g m e n t s
a GLOBAL financial DEVELOPMENT REPORT 2013
Peer Reviewers
Stijn Claessens Assistant Director, Research Department, International Monetary Fund
Augusto de la Torre Chief Economist, Latin America and the Caribbean Vice Presidency,
World Bank
Ross Levine James and Merryl Tisch Professor of Economics; Director, William R.
Rhodes Center for International Economics and Finance, Department of
Economics, Brown University
Norman Loayza Lead Economist and Director, 2014 World Development Report: Risks,
Vulnerabilities, and the Crisis, World Bank
Roberto Rocha Senior Adviser, Financial and Private Sector Vice Presidency, World
Bank
Tunc Uyanik Director, Financial Systems Global Practice and East Asia and Pacific
Region, Financial and Private Sector Vice Presidency, World Bank
21. Abbreviations and Glossary
ATP/TA after-tax profits to assets e-MID Electronic Market for Interbank
BANSEFI Banca de Ahorro Nacional y Deposit
Servicios Financieros FIRA Fideicomisos Instituidos en
BB Banco do Brasil Relación con la Agricultura,
BCB Banco Central do Brasil Mexico
BCBS Basel Committee for Banking FIRST Financial Sector Reform and
Supervision Strengthening Initiative
BIS Bank for International FOGAPE State-Owned Guarantee Fund
Settlements for Small Entepreneurs, Chile
BNDES Banco Nacional de FSA Financial Sector Assessment
Desenvolvimento Econômico e FSAP Financial Sector Assessment
Social (state-owned development Program
bank, Brazil) FSB Financial Stability Board
BTP/TA before-tax profits to assets FSSA Financial System Stability
CCP central counterparty Assessment
CEF Caixa Econômica Federal GCC Gulf Cooperation Council
CoCo contingent capital GDP gross domestic product
CPSIPS Core Principles for Systemically GOB government-owned bank
Important Payment Systems GTS global trading system
CPSS Committee on Payment and HHI Herfindahl-Hirschman index (of
Settlement Systems market concentration)
CR5 concentration ratio (share of IDB Inter-American Development
the five largest banks in total Bank
banking system assets) IFC International Finance
DB development bank Corporation
DNS deferred net settlement IFRS International Financial
DTAs deferred tax assets Reporting Standards
EAP East Asia and Pacific IMF International Monetary Fund
ECA Europe and Central Asia IOSCO International Organization of
EMDEs emerging markets and Securities Commissions
developing economies IRB international ratings-based
g l o b a l f i n a n c i a l d e v e l o p m e n t R EPO R T 2 0 1 3 xix
22. xx b b r e v i a t i o n s
a and glossary GLOBAL financial DEVELOPMENT REPORT 2013
KfW Kreditanstalt für Wiederaufbau, PKO BP PKO Bank Polski
Germany PRISM Pakistan Real Time Interbank
KOTEC Korean government guarantor Settlement Mechanism
LAC Latin America and the PSEFT Payment System and Electronic
Caribbean Fund Transfer
LIBOR London interbank offered rate PwC Pricewaterhouse Coopers
LLP loan loss provisioning RCCP Recommendations for Central
M2 M2 measure of money supply Counterparties
MENA Middle East and North Africa ROA return on assets
MFI microfinance institution RSSS Recommendations for Securities
MIC Collateralized Interbank Settlement Systems
Market (Italy) RTGS real-time gross settlement
MSR mortgage servicing rights RWA risk-weighted assets
NAFIN Nacional Financiera, Mexico SAR Special Administrative Region
NBFI nonbank financial institution SBP State Bank of Pakistan
NBP National Bank of Poland SECO State Secretariat for Economic
NI net interest income Affairs, Switzerland
NII non-interest income SELIC Sistema Especial de Liquidação
NPL nonperforming loan e de Custódia
NPS national payment system SIFIs systemically important financial
NSFR net stable funding ratio institutions
OECD Organisation for Economic SME small and medium enterprise
Co-operation and Development SSA Sub-Saharan Africa
OLS ordinary least squares STR Sistema de Transferência de
OTC over the counter Reservas
OV overhead costs TA/A taxes to assets
P/E price-to-earnings ratio
Glossary of key terms used throughout the report
The financial The financial system in a country is defined to include financial insti-
system tutions (banks, insurance companies, and other nonbank financial
institutions) and financial markets (such as those in stocks, bonds,
and financial derivatives). It also includes the financial infrastructure
(which includes, for example, credit information–sharing systems and
payment and settlement systems).
Financial Conceptually, financial development is a process of reducing the costs
development of acquiring information, enforcing contracts, and making transac-
tions. Empirically, measuring financial development directly is chal-
lenging. Instead, the report measures four financial system character-
istics (depth, access, efficiency, and stability) for financial institutions
and financial markets (“4x2 framework”).
The state The state is defined in a broad economic sense, to include not only the
country’s government but also autonomous or semiautonomous agen-
cies such as a central bank or a financial supervision agency.
The roles of the The roles of the state in the financial sector include those of a pro-
state moter, owner, regulator, and overseer. The report focuses on areas
that were highlighted by the crisis and are of particular relevance for
financial development.
Country A territorial entity for which statistical data are maintained and pro-
vided internationally on a separate and independent basis (not neces-
sarily a state as understood by international law and practice).
23. Overview
O n September 15, 2008, the failure of
the U.S. investment banking giant
Lehman Brothers marked the onset of the larg-
Which lessons about the connections between
finance and economic development should
shape policies in coming decades?
est global economic meltdown since the Great On the surface, the main contrast between
Depression. The aftershocks have severely this global crisis and those in recent decades is
affected the livelihoods of millions of people that developed economies were affected much
around the world. The crisis triggered policy more strongly and more directly than were
steps and reforms designed to contain the cri- developing economies. But some developed
sis and to prevent repetition of these events. financial systems (such as those of Australia,
Four years later, with banking woes ongo- Canada, and Singapore) have shown remark-
ing in various parts of the world (most nota- able resilience so far, while some developing
bly in the euro area), it is a good time to ones have been brought to the brink of col-
evaluate these reforms and their likely con- lapse. The bigger point is that the quality of
tribution to long-run financial development. a state’s policy for the financial sector mat-
The crisis experience is thus an important ters more than the economy’s level of devel-
part of the motivation for this inaugural opment. This report reassesses the role of the
Global Financial Development Report. The state in finance, based on updated data, ongo-
crisis has prompted many people to reassess ing research, and World Bank Group experi-
various official interventions in financial ences from around the world.
systems, from regulation and supervision of Two building blocks underlie the report’s
financial institutions and markets, to com- view of the role of the state in finance. First,
petition policy, to state guarantees and state there are sound economic reasons for the
ownership of banks, and to enhancements in state to play an active role in financial sys-
financial infrastructure. tems. Second, there are practical reasons to
But the crisis does not necessarily negate be wary of the state playing too active a role
the considerable body of evidence on these in financial systems. The tensions inherent in
topics accumulated over the past few decades. these two building blocks emphasize the com-
It is important to use the crisis experience to plexity of financial policies. Though econom-
examine what went wrong and how to fix it. ics identifies the social welfare advantages of
g l o b a l f i n a n c i a l d e v e l o p m e n t R EPO R T 2 0 1 3 1
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certain government interventions, practical Nevertheless, with ample reservations and
experience suggests that the state often does cautions, this report teases out broad lessons
not intervene successfully. Furthermore, since for policy makers from a variety of experi-
economies and the state’s capacity to regu- ences and analyses (see box O.1 for a sum-
late differ across countries and over time, mary of the main messages).
the appropriate involvement of the state in The state tends to play a major role in
the financial system also varies case by case. the modern financial sector, as promoter,
BOX O.1 Main Messages of This Report
The report’s overall message is cautionary. The global bility. However, research presented in this report
financial crisis has given greater credence to the idea suggests that, for the most part, factors such as poor
that active state involvement in the financial sector regulatory environment and distorted risk-taking
can help maintain economic stability, drive growth, incentives promote instability, rather than competi-
and create jobs. There is evidence that some interven- tion itself. With good regulation and supervision,
tions may have had an impact, at least in the short bank competition can help improve efficiency and
run. But there is also evidence on potential longer- enhance access to financial services, without neces-
term negative effects. The evidence also suggests that, sarily undermining systemic stability. Rather than
as the crisis subsides, there may be a need to adjust restricting competition, it is necessary to address
the role of the state from direct interventions to less distorted competition, improve the flow of informa-
direct involvement. This does not mean that the state tion, and strengthen the contractual environment.
should withdraw from overseeing finance. To the con- Lending by state-owned banks can play a positive
trary, the state has a very important role, especially in role in stabilizing aggregate credit in a downturn, but
providing supervision, ensuring healthy competition, it also can lead to resource misallocation and dete-
and strengthening financial infrastructure. rioration of the quality of intermediation. The report
Incentives are crucial in the financial sector. The presents some evidence that lending by state-owned
main challenge of financial sector policies is to better banks tends to be less procyclical and that some
align private incentives with public interest without state-owned banks even played a countercyclical role
taxing or subsidizing private risk-taking. Design of during the global financial crisis. However, the track
public policy needs to strike the right balance—pro- record of state banks in credit allocation remains gen-
moting development, yet in a sustainable way. This erally unimpressive, undermining the benefits of using
approach leads to challenges and trade-offs. state banks as a countercyclical tool. Policy makers
In regulation and supervision, one of the crisis les- can limit the inefficiencies associated with state bank
sons is the importance of getting the “basics” right credit by paying special attention to the governance
first. That means solid and transparent institutional of these institutions and schemes and ensuring that
frameworks to promote financial stability. Specifi- adequate risk management processes are in place.
cally, it means strong, timely, and anticipatory super- However, this oversight is challenging, particularly in
visory action, complemented with market discipline. weak institutional environments.
In many developing economies, that combination of Experience points to a useful role for the state in
basic ingredients implies a priority on building up promoting transparency of information and reducing
supervisory capacity. Here, less can mean more: less counterparty risk. For example, the state can facili-
complex regulations, for instance, can mean more tate the inclusion of a broader set of lenders in credit
effective enforcement by supervisors and better moni- reporting systems and promote the provision of high-
toring by stakeholders. quality credit information, particularly when there
The evidence also suggests that the state needs to are significant monopoly rents that discourage infor-
encourage contestability through healthy entry of mation sharing. Also, to reduce the risk of freeze-ups
well-capitalized institutions and timely exit of insol- in interbank markets, the state can create the condi-
vent ones. The crisis fueled criticisms of “too much tions for the evolution of markets in collateralized
competition” in the financial sector, leading to insta- liabilities.
25. GLOBAL financial DEVELOPMENT REPORT 2013 O v e r v i e w 3
owner, regulator, and overseer. Indeed, eco- that pay off, bank owners reap the profits.
nomics provides several good motivations But when such gambles fail, the bank may
for an active role for the state in finance. not bear the full cost. For example, bail-
These motivations reflect the effects of “mar- outs of troubled banks spread the cost of
ket imperfections,” such as the costs and failed bets broadly among others in society
uncertainties associated with (a) acquiring who had no connection to the original risky
and processing information, (b) writing and investment decision. This potential for cas-
enforcing contracts, and (c) conducting trans- cading events can be a reason for the state to
actions. These market imperfections often intervene by imposing “speed limits” on risk
create situations in which the actions of a few taking by banks.
people or institutions can adversely influence Third, limitations on the ability of people
many other people throughout society. These to process information, and the tendency of
externalities provide the economic rationale some people to follow the crowd, can moti-
for the government to intervene to improve vate governments to take an active role in
the functioning of the financial system. financial markets. For example, when people
A few examples demonstrate how market have difficulty fully understanding complex
imperfections motivate government action. investments or do not appreciate the possibil-
First, when one bank fails, this can cause ity of rare but extreme events, this can lead
depositors and creditors of other banks to investors to make systematic mistakes, which
become nervous and start a run on these can jeopardize the stability of the economy,
other banks. This “contagion”—whereby the with potentially adverse ramifications for
weakness in one bank can cause stress for people who neither make those investments
otherwise healthy financial institutions—can nor have any influence over those that do.
reverberate through the economy, causing Governments can limit the adverse reper-
problems for the individuals and firms that cussions of these market failures. For exam-
rely on those otherwise healthy institutions. ple, regulation and supervision can limit risk
This is the classic bank run. taking by financial institutions to avoid the
A second example stresses the externali- potential externalities associated with finan-
ties associated with risk taking, especially cial fragility. Also, authorities can regulate
for large financial institutions. For the sake information disclosure to facilitate sound
of this illustration, imagine a busy road with decisions, and even regulate financial prod-
cars and trucks. If a car or truck goes faster, it ucts, similar to how governments regulate
can get to its destination sooner, but there is a the sale of food and drugs. Thus, economics
chance that it will be involved in a crash. The provides many reasons for an active role of
likelihood of a crash is small but it increases the state in finance.
with speed. Crashes involving large vehicles But just because the state can ameliorate
are particularly costly to others involved in market imperfections and improve the oper-
the crash and very disruptive to traffic in gen- ation of financial systems does not mean that
eral. Nobody wants to be involved in a crash, it will. Designing and enforcing appropriate
of course. But when deciding on how fast to policy can be tricky. Returning to the previ-
go, a car or truck driver may not fully con- ous analogy with speed limits for cars and
sider the costs that a crash might have on oth- trucks, having a single speed limit may not
ers in terms of injuries, damages, time lost in seem very effective, because some vehicles
traffic jams, and so on. The state can play a have better safety features, such as braking
role, for example by imposing and enforcing systems, and therefore are less likely to end
speed limits, and perhaps imposing stricter up in a crash. If vehicles with better brakes
regulation of vehicles that pose bigger risks, were allowed to go faster, they could spend
such as large trucks. less time on the road, and traffic could ease
Similarly, financial institutions often do up. But brake quality is difficult to monitor
not bear the full risks of their portfolios. in real time. So, differentiated speed lim-
When a large bank makes risky investments its can be difficult to design and enforce,
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resulting in more speeding and crashes. The objectives, including less altruistic ones, such
state could also intervene directly by pro- as helping friends, family, cronies, and politi-
viding government-approved drivers for all cal constituents. When this happens, the gov-
cars and trucks. That way, the state can have ernment can do serious harm in the financial
more control over safety and soundness, but system. These arguments suggest a sober
it can become quite expensive for taxpay- wariness concerning the role of the state in
ers. Alternatively, the state could build large finance that will vary according to confidence
speed bumps on the road, so that there are in the political system’s ability to promote the
almost no crashes; however, traffic would public good.
slow down to a crawl. Determining the proper role of the state in
The analogy underscores that correct- finance is thus as complex as it is important:
ing market imperfections is a complicated one size does not fit all when it comes to pol-
task, requiring considerable information and icy intervention. In less developed economies,
expertise to design, implement, and enforce there may seem to be more scope for the gov-
sound policies. State interventions in finance ernment’s involvement in spearheading finan-
need to be risk-sensitive, but measuring risk cial development. However, less development
properly and enforcing risk-based regulations is often accompanied by a less effective insti-
is far from straightforward. The state can try tutional framework, which in turn increases
to run parts of the financial system directly, the risk of inappropriate interventions. And
but evidence shows that approach to be very the role of the state naturally changes as the
costly. And if the state required banks to hold financial system creates new products, some
capital as large as their loans, the risk of fail- of which obviate the need for particular poli-
ures would be minimal, but financial inter- cies while others motivate new government
mediation would grind to a halt since banks interventions. Reflecting this complexity,
would not be able to lend. country officials and other financial sector
An important complicating factor is that experts often hold opposing views and opin-
the same government policies that ameliorate ions on the pros and cons of various state
one market imperfection can create other— interventions—a point illustrated by a recent
sometimes even more problematic—distor- informal global opinion poll carried out by
tions. For example, when the government the Global Financial Development Report
insures the liabilities of banks to reduce the team (box O.2).
possibility of bank runs, the insured credi- The Global Financial Development
tors of the bank may not diligently monitor Report provides new insights on financial
the bank and scrutinize its management. development and the role of the state in finan-
This can facilitate excessive risk taking by cial systems, building on the experience from
banks. The state can try to limit risk tak- the global financial crisis. Varying economic
ing by large, interconnected financial insti- and political circumstances across countries
tutions. However, such interventions might imply that financial sector policies require
reduce the incentives of private shareholders customization: appropriate policies will dif-
to exert strong corporate control over these fer across countries and over time. But there
institutions, because they think the govern- are common lessons and guidelines. While
ment is already doing it. Thus, state interven- recognizing the complexity of the issue and
tions can create even more reliance on the the limits of existing knowledge, this report
state. contributes new data and analysis to the pol-
An even deeper issue is whether the state icy discussion.
always has sufficient incentives to correct for
market imperfections. Governments do not
Benchmarking Financial
always use their powers to address market
Systems
imperfections and promote the public inter-
est. Sometimes, government officials use A growing body of evidence shows that
the power of the state to achieve different financial institutions and financial markets
27. GLOBAL financial DEVELOPMENT REPORT 2013 O v e r v i e w 5
BOX O.2 Views from Some of the World Bank Clients
As part of its effort to find out more about client firmed various areas of agreement. For example,
country views, the Global Financial Development there is a widespread notion that state-owned
Report team carried out an informal global poll— financial institutions and government-backed credit
the 2011/12 Financial Development Barometer. This guarantees can in principle play a useful role. The
poll, which covered country officials and financial poll also shows many respondents seeing potential
sector experts from 78 countries (23 developed and benefits in more stringent supervision of new finan-
55 developing), provides interesting insights into cial instruments in light of the crisis. A majority
views about financial development and the role of also see a scope for a more active role of the state
the state in finance. in promoting technological innovations in financial
Despite the crisis experience, 90 percent of the infrastructure.
country officials and experts surveyed in the poll Perhaps more interestingly, the poll also indi-
perceive that positive effects of finance (in particular cated many key policy areas where the views for and
those on economic growth and poverty reduction) against are almost evenly split. This split includes,
outweigh its potential negative effects. A majority for example, opinions on the need for stringency
of the respondents therefore see that their country’s and greater scope of regulation and supervision, the
financial sector needs to grow, especially in terms pros and cons of greater competition in countries’
of financial markets and nonbank financial institu- financial systems, the possible countercyclical role
tions, to better serve its clients and expand to new of state-owned financial institutions, and the role of
ones. the state in promoting information sharing—all top-
As regards the role of the state in the financial ics that are examined in the current Global Finan-
sector, the Financial Development Barometer con- cial Development Report.
Selected Responses from the 2011/12 Financial Development Barometer
Views were split on important aspects of the state’s role . . . Agree? (%)
“In view of the global financial crisis, more stringent financial sector regulation and
supervision is needed.” 49
“In view of the global financial crisis, there is a need for broadening the scope of financial
sector regulation and supervision.” 54
“More financial sector competition would help financial stability in my home country.” 58
“State-owned financial institutions played an effective countercyclical role during the recent
global financial crisis.” 48
“Government-backed credit guarantee schemes do play an important role in promoting
financial stability.” 64
“The development of collateral registries can be left, fully or mostly, to the private sector.” 42
Note: The Financial Development Barometer is an informal global poll covering country officials and financial
sector experts from 78 economies (23 developed and 55 developing). The response rate was 65 percent. Results are
percentages of total responses received.
exert a powerful influence on economic the banking industry as a proxy for financial
development, poverty alleviation, and the development. However, size is not a measure
stability of economies around the world. Yet of quality, efficiency, or stability. Moreover,
measuring the functioning of the financial the banking sector is only one component
system has important shortcomings. Indeed, of financial systems. This report, along with
empirical work has largely—though not the accompanying public database, assembles
exclusively—relied on measures of the size of and improves cross-country data that can be
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used to benchmark financial systems. Chap- less deep and also somewhat less efficient and
ter 1 addresses questions such as: How can to provide less access, their stability has been
one empirically describe different charac- comparable to developed-country financial
teristics of financial systems? How can one systems. These measures are then used to
compare financial systems across countries characterize and compare financial systems
and regions and through time? How have across countries and over time, highlight-
financial systems been affected by the global ing the multidimensional nature of financial
financial crisis, and what are the key recent development. Country-by-country informa-
trends? tion on the key financial system characteris-
To measure and benchmark financial sys- tics is presented in the Statistical Appendix,
tems, the report develops several measures with more data available through the report’s
of four characteristics of financial institu- website.
tions (banks, insurance companies, and so
on) and financial markets (stock markets and
Rethinking the Role of
bond markets): (a) the size of financial insti-
the State in the Financial
tutions and markets (financial depth), (b) the
Sector
degree to which individuals can and do use
financial institutions and markets (access), The report addresses the following key pol-
(c) the efficiency of financial institutions icy questions: (a) What is the early postcrisis
and markets in providing financial services thinking on transforming regulatory prac-
(efficiency), and (d) the stability of financial tices around the world? (b) How should gov-
institutions and markets (stability). These ernments promote competition in the finan-
four characteristics are measured both for cial sector without planting the seeds of the
financial institutions and financial markets, next crisis? (c) When do direct government
leading to a 4x2 matrix of the characteristics interventions—such as state ownership and
of financial systems. A basic comparison (fig- guarantees—help in developing the financial
ure O.1) confirms that although developing- sector, and when do they fail? and (d) What
economy financial systems tend to be much should states do to support robust financial
Figure O.1 Benchmarking Financial Development, 2008–10
a. Financial institutions b. Financial markets
Depth Depth
100 100
75 75
50 50
25 25
0
Stability 0 Access Stability Access
Developed economies (%)
Efficiency Developing economies (%) Efficiency
ˇ
Source: Calculations based on Cihák, Demirgüç-Kunt, Feyen, and Levine 2012.
Note: Average values are shown for 2008–10 with simple (unweighted) averages across country groups. The 0 corresponds to a historical low of the proxy
variable, and 100 corresponds to a historical high calculated for all countries over the period 1960–2010. For the explanation of individual proxy variables
for financial depth, access, stability, and efficiency, see chapter 1.
29. GLOBAL financial DEVELOPMENT REPORT 2013 O v e r v i e w 7
BOX O.3 Navigating This Report
In addition to this Overview, the report has two Chapter 4 examines direct state interventions,
main parts. The first part (chapter 1) introduces particularly the experience with state-owned banks
measures of different characteristics of financial sys- during the financial crisis. It reviews existing and
tems that are useful in benchmarking financial sys- new research and reexamines the performance of
tems around the world. The second part (chapters 2 state-owned banks during crises. A large part of
through 5) examines various aspects of the state’s the discussion focuses on state-owned commer-
role in finance. cial banks as opposed to state-owned development
Chapter 1 describes financial depth, access, effi- banks; nonetheless, the chapter also presents a new
ciency, and stability across countries and regions, data set based on a recent survey of development
especially in developing economies. Chapter 1 intro- banks. It also examines the role of credit guarantees.
duces a major new database, the Global Financial Chapter 5 relates to the role of the state in finan-
Development Database, and discusses how subse- cial infrastructure, with a focus on two topics high-
quent editions of the report will revisit the analysis lighted by the crisis: (a) information sharing in credit
and benchmarking of financial systems with updated markets, and (b) the role of the state in reducing
and expanded data. counterparty risk in payments and securities settle-
Chapter 2 examines the role of the state as reg- ment systems.
ulator and supervisor. It presents results from a The accompanying website (http://www.world
recently updated and substantially expanded World bank.org/financialdevelopment) contains a wealth
Bank survey of regulation and supervision around of underlying research, additional evidence includ-
the world, explores how crisis countries were differ- ing country examples, and an extensive database on
ent from noncrisis countries, and tracks changes that financial development, providing users with interac-
governments made after the crisis. The chapter also tive access to information on financial systems. The
reviews international regulatory and supervisory website is also a place where users participate in an
reforms and discusses proposals for further reforms. online version of the Financial Development Barom-
Chapter 3 focuses on the role of the state in com- eter, provide feedback on this Global Financial
petition policy. After discussing various measures of Development Report, and submit their suggestions
competition, and presenting trends across countries for future issues of the report.
and over time based on a new worldwide data set, it The report concentrates on banks. There are
reviews the evidence on the implications of banking some references to and data on financial markets
competition for bank efficiency, access to finance, and nonbank financial institutions (for example, in a
and financial stability. The chapter then analyzes the discussion on the regulatory perimeter and on access
policy drivers of competition and highlights the role by nonbank institutions to financial infrastructure).
of the state in (a) promoting a contestable banking But to keep the report focused, much of the discus-
system and (b) enabling a market-friendly informa- sion is devoted to banks. Future issues of the report
tional and institutional environment. It also ana- will cover financial markets and nonbank financial
lyzes the impact of government actions during crises institutions in more depth.
on bank competition.
infrastructure? Box O.3 provides an over- factors, including a country’s level of devel-
view of the report’s chapters. opment and the government’s capacity. Two
How should public policy be designed themes emerge throughout this report.
to address these four key questions? The The first relates to direct and indirect
issue of concern in this report is how best interventions. During the recent crisis, direct
to balance the various roles of the state as state interventions have increased, and early
promoter, owner, regulator, and overseer. evidence reveals that some of these inter-
The right balance depends on a number of ventions worked, at least in the short run.
30. 8 v e r v i e w
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However, there is also evidence on potential Overall, there is broad agreement to
longer-term negative effects. Therefore, as the address the “basics” first. This means hav-
crisis subsides, there may be a need to rebal- ing in place a coherent institutional and legal
ance toward less direct state involvement. framework that establishes market discipline
The second important theme is the criti- complemented by strong, timely, and antici-
cal role that incentives play in the financial patory supervisory action. In many develop-
sector. The challenge for the state’s involve- ing economies, this also means that building
ment is to better align private incentives with up supervisory capacity needs to be a top
public interest, without taxing or subsidizing priority. Among the important lessons of
private risk taking. The design of public pol- the global financial crisis are renewed focus
icy needs to strike the right balance in order on systemic risk and the need to pay greater
to promote sustainable development. This attention to incentives in the design of regula-
leads to different challenges and trade-offs in tion and supervision.
answering each of the four questions below. Using a new survey of regulation and
supervision around the world (figure O.2),
chapter 2 confirms that countries where
What are the best ways to reform
the global financial crisis originated had
regulation and supervision?
weaker regulation and supervisory practices
The global financial crisis that intensified (for example, less stringent definitions of
with the collapse of Lehman Brothers in Sep- capital, less stringent provisioning require-
tember 2008 presented a major test of the ments, and greater reliance on banks’ own
international architecture developed over risk assessment), as well as less scope for
many years to safeguard the stability of the market incentives (for example, lower qual-
global financial system. Although the causes ity of financial information made publicly
of the crisis are still being debated, there is available, more generous deposit insurance
agreement that the crisis revealed major coverage). Tracking changes during the cri-
shortcomings in market discipline, regula- sis reveals that countries have stepped up
tion, and supervision. The financial crisis efforts in the area of macroprudential pol-
therefore has reopened important policy icy, as well as on issues such as resolution
debates on financial regulation. After the regimes and consumer protection. However,
onset of the meltdown, there was much talk it is not clear whether incentives for market
about not wasting the crisis, and using it to discipline have improved. Some elements of
push through necessary reforms. Indeed, disclosure and quality of information have
many reforms have been enacted or are in improved, but deposit insurance coverage has
process. Much has been done, but the system increased during the crisis. This increased
was tested further by the more recent euro coverage, together with generous support for
area crisis, leading to the questions: Are the weak banks, did not improve incentives for
reforms adequate and will they be sufficient monitoring. The survey suggests that there is
to reduce the likelihood and severity of future further scope for improving disclosures and
financial crises? monitoring incentives.
Regulation and supervision represent one Despite the progress made on regulatory
area in which the role of the state is not in reform, there are still important areas of dis-
dispute. The crucial role of the state is widely agreement. Hence, chapter 2 also presents
acknowledged and is well established in the a number of reform proposals that call for
economic and financial literature. Hence, the greater emphasis on simplicity and transpar-
debate is not about whether the state should ency, as well as a focus on incentive-compat-
regulate and supervise the financial sector, ible regulations. Importantly, these proposals
but about how best to go about ensuring that warn against growing complexity of regula-
regulation and supervision support sound tion, which may reduce transparency and
financial development. accountability, increase regulatory arbitrage
31. GLOBAL financial DEVELOPMENT REPORT 2013 O v e r v i e w 9
Figure O.2 Selected Features That Distinguish Crisis-Hit Countries
Broader capital definition (Is Tier 3 allowed in regulatory capital?)
More sophisticated modeling (Is an advanced internal ratings-based
approach offered to banks?)
Less strict provisioning I (Are minimum levels of specific
provisions for loans and advances set by the regulator?)
Less strict provisioning II (Is there a regulatory requirement for
general provisions on loans and advances?)
Less oversight of external auditors (Are external auditors subject to
independent oversight by the supervisor?)
Lower standards for public data quality (Do laws or regulations require
auditors to conduct their audits in accordance with international standards?)
0 20 40 60 80 100
Crisis Non-Crisis
ˇ
Source: Cihák, Demirgüç-Kunt, Martínez Pería, and Mohseni 2012.
Note: Percentage of countries that responded “yes” to the question in parentheses. Based on the World Bank’s 2011 Bank Regulation and Supervision
Survey. “Crisis” countries are defined as those that had a banking crisis between 2007 and 2011, as identified in Laeven and Valencia (2012).
opportunities, and significantly strain regu- other risk-mitigating features. However, if
latory resources and capacity. The propos- the state does not have the capacity to moni-
als suggest a regulatory approach that is tor and police such complex rules, the likely
more focused on proactively identifying and result is more speeding and more crashes.
addressing incentive problems and making Similarly, complex approaches to calculat-
regulations incentive-compatible. This can ing capital requirements are not appropriate
help to end the continuous need to elimi- if there is limited capacity to verify the cal-
nate deficiencies and close loopholes that are culations, do robustness checks, and police
inevitably present in ever more complex sets implementation.
of regulations. Other proposals address the One of the positive developments triggered
incentives that the regulators face and either by the crisis is much greater debate and com-
propose alternative institutional structures or munication among regulators, policy mak-
suggest tools to identify incentive issues on an ers, and academics, who are striving to reach
ongoing basis. the common goal of designing regulations to
In implementing supervisory best prac- minimize the occurrence and cost of future
tices, emerging markets and developing econ- crises. The diverse views and multiple reform
omies should focus on establishing a basic proposals in this debate (presented in chapter
robust supervisory framework that reflects 2) are likely to inform the regulatory reform
local financial systems’ characteristics, and process and improve future outcomes.
refraining from incorporating unnecessary
(and in several cases inapplicable) complex
How should the state promote
elements. Referring back to the earlier anal-
competition in the financial sector?
ogy with speed limits for cars and trucks,
it may be appealing to have a complex rule The global financial crisis also reignited the
in which each car has its own speed limit, interest of policy makers and academics in
depending on the quality of its brakes and the impact of bank competition and the role