Should there be more or less competition in the financial system? Should new financial instruments be regulated more or less stringently? What is the right market share of state-owned financial institutions? These are just a few of the vexing questions in finance. For some, there is robust evidence and a broad agreement on answers, but for most, views are split. Moreover, due to the global financial crisis, the balance of opinion on some issues has been shifting. We have done a survey of views on these topics, and would like to hear more from you, our online readers!
In a recent paper by myself and my colleague Megumi Kubota (forthcoming in the Journal of International Economics), we argue that the distinction between sudden stops caused by domestic versus foreign residents is crucial when we examine the effects of these types of episodes on economic performance and their policy implications. Identifying the relative importance of the shocks underlying these different types of sudden stops is essential. If sudden stops were, for instance, attributed to reduced inflows by foreigners, policymakers should minimize the country’s vulnerability to external shocks. The policy advice would be different, however, if net reversals in capital flows are explained by gross outflows of domestic residents looking for better risk-taking opportunities abroad.
On May 14-18 the World Bank held its annual Overview Course on Financial Sector Issues in Washington, DC. Geared towards mid-career financial sector policy-makers and practitioners, the objective of this one-week event was to discuss issues of current and long-run importance to the development of the financial sector. This year’s course focused on Lessons from Recent Crises and Current Priorities for Finance Practitioners and Policy-Makers. The timing was quite fitting—the course took place the same week that JP Morgan’s billion-dollar trading became public and the European crisis intensified as Greek banks suffered large deposit runs.
Perhaps not surprisingly in light of recent events affecting the financial sector in the US and Europe, three main broad themes resonated in many of the sessions of the course: (1) the need for more and better bank capital, (2) the importance of putting in place the right incentives for banks to limit the risks they take, and (3) the role of macroprodudential regulation in monitoring and limiting systemic risk.
In a new working paper published in the World Bank Working Paper Series, John Gibson, David McKenzie, and I look at exactly this question.
While much of migration policy has been focused on reducing costs of remittances and introducing new and inexpensive transmission channels, relatively little attention has been paid to educating customers on such benefits. After all, this could be pretty low hanging fruit – tell migrants about a cheaper way of remitting and they will switch.
With this thought in mind, we designed an information dissemination experiment for migrant workers in both Australia and New Zealand who had migrated from the Pacific Islands, East Asia, and Sri Lanka.
Despite rapid economic growth, gender disparities have remained deep and persistent in India and other South Asian countries. The UN Gender Inequality Index has ranked India below several Sub-Saharan African countries. Gender disparities are even more pronounced in economic participation and women’s business conditions in India. Using data from the 2011 Global Gender Gap report, Figure 1 shows that while India scores around the mean gender gap index overall (horizontal axis), its score for women’s economic participation and opportunity is below the 5th percentile of the distribution (vertical axis).
What explains these huge gender disparities in women’s economic participation in India? Is it poor infrastructure, limited education, and gender composition of the labor force and industries? Or is it deficiencies in social and business networks and a low share of incumbent female entrepreneurs?In a recent paper we examine gender disparities in women’s business conditions in India. We use detailed micro-data on the unorganized manufacturing and services sectors to explore the drivers of female entrepreneurship across districts and industries.
Almost five years after the onset of the global financial crisis, much has been done to reform the global financial system, but much is still left to accomplish. Comprehensive reform, once agreed to and implemented in full, will have far-reaching implications for the global financial system and the world economy. In a new book, Building a More Resilient Financial Sector, edited by Aditya Narain, Ceyla Pazarbasioglu, and myself, we summarize our views on various reform proposals discussed since 2008, ranging from various regulatory reforms to supervision, too-important-to-fail (TITF) proposals, restricting banks’ size and scope, resolution, and to living wills.
The International Monetary Fund (IMF), alongside the Bank for International Settlements and Financial Stability Board, has been at the forefront of discussions on shaping the new financial system to reduce the possibility of future crises and limit the consequences if they occur. Current reforms are moving in the right direction towards building a more resilient financial system capable of supporting sustainable economic growth, but many policy choices—both urgent and challenging—still lie ahead. Progress has been made in some areas, including in reforming capital (including for systemically important financial institutions—SIFIs), recognizing the importance of a wider regulatory perimeter to oversee shadow banks, improving supervision, disclosure, and resolution regimes, and addressing incentives for risk-taking. Policymakers put forward some novel ideas, such as living wills and contingent capital (CoCos). But they lagged in implementation in many areas, while disagreeing over others.
The global financial crisis made us rethink financial sector regulation and supervision. As part of this process there has been a renewed interest in the institutional structure of financial services supervision. This includes reflections on the differences in these structures across countries, their development over time and their relative performance in the run-up and during the crisis. Several important questions have arisen: (i) why supervisory structures for the financial sector differ so much across countries, especially in the extent to which they integrate the microprudential supervision of financial subsectors (banking, insurance, capital markets), (ii) why some countries have chosen to institutionally integrate microprudential and macroprudential supervisions while other keep those separated, (iii) why business conduct supervision has been introduced in some countries and not others, and how does it interact with institutions that support prudential supervision? From a development perspective, one may also want to ask the questions of: (i) what models have the emerging market economies and developing countries chosen to follow and why, and (ii) is there a prevailing trend toward certain benchmark models that countries have followed according to their financial system typology?
Most countries around the world have some form of minimum wages. Policymakers have often argued that raising the minimum wage increases the income of low-income workers, and therefore can be used as a tool to reduce poverty and inequality. Some policymakers also argue that wage increases can improve workers’ productivity (Levine, 1992; Raff and Summers, 1987) because they lead to increases in work effort, reductions in job turnover and more on-the-job training (Katz, 1987). However, several studies find that increases in minimum wages without commensurate increases in labor productivity could lead to job losses in the formal sector. The main reason provided for this argument is that poor workers—the people expected to benefit from the policy—are more likely to be pushed out of formal employment because they often have limited skills and low productivity, and thus tend to be among the first to be laid off when minimum wages increase.
The facts are in. 50 percent of adults worldwide have an account at a formal financial institution. 21 percent of women save using a formal account. 16 percent of adults in Sub-Saharan Africa use mobile money. These are just a few of the thousands of data points now available in the Global Financial Inclusion (Global Findex) database, the first of its kind to measure people’s use of financial products across economies and over time.
Thankfully, researchers and policymakers no longer have to rely on a patchwork of incompatible household surveys and aggregated central bank data for a comprehensive view of the financial inclusion landscape. The publically accessible Global Findex provides comparable individual-level data that facilitate detailed analyses of how adults save, borrow, make payments, and manage risk in 148 economies. The data are based on more than 150,000 interviews with adults representing over 97 percent of the world’s population and was carried by Gallup Inc. as a component of its 2011 World Poll.
The global financial crisis reignited the interest of policymakers and academics in assessing the impact of bank competition on stability and rethinking the role of the state in shaping competition policies. Competition in the financial sector has a long list of obvious benefits: greater efficiency in the production of financial services, higher quality financial products and more innovation. When financial systems become more open and contestable, generally this results in greater product differentiation, a lowering of the cost of financial intermediation and more access to financial services. But when we turn to the issue of financial stability, it is no longer so obvious whether competition is beneficial or not, with a continuing debate among academics and policymakers alike. Some believe that increasing financial innovation and competition in certain markets like sub-prime lending contributed to the recent financial turmoil. Others worry that as a result of the crisis and the actions of governments in support of the largest banks, concentration in banking increased, reducing the competitiveness of the sector and potentially contributing to future instability as a result of moral hazard problems associated with “too big to fail” institutions.