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The Global Findex: The first database tracking how adults use financial services around the world

Asli Demirgüç-Kunt's picture

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.

Is Bank Competition a Threat to Financial Stability?

Asli Demirgüç-Kunt's picture

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.

Effects of Licensing Reform on Firm Innovation

Murat Seker's picture

Many studies since the emergence of endogenous growth theory have identified technological innovation as the main determinant of growth. There are structural factors like human and physical capital that contribute to achieving higher innovation rates. However, improving these factors is not sufficient to succeed in innovation. A country’s regulatory environment and investment climate also play important roles in the success of technology adoption strategies and innovation efforts. In a recent paper on the Effects of Licensing Reform on Firm Innovation, I provide an empirical analysis of how the regulatory environment can be crucial for innovation. The paper focuses on regulation of a particular product market that was reformed in India in the mid 1980s and then again in early the 1990s. Before the reform all firms were required to obtain a license to establish a new factory, significantly expand capacity, start a new product line, or change location. Licensing reform meant freedom from constraints on outputs, inputs, technology usage, and location choice as well as easier entry into delicensed industries. Freedom from these constraints allowed firms to take advantage of economies of scale, more efficient input combinations, and newer technologies.

Who are informal business owners?

Miriam Bruhn's picture

Many firms in developing countries are informal, that is they operate without registering with the government. For example, in a labor market survey of Mexico, nearly 50 percent of business owners report that their firm is not registered with the authorities.

Different explanations have been put forth to explain why firms operate informally. One view, associated with De Soto (1989), is that informal business owners are viable entrepreneurs who are being held back from registering their firm due to complex regulations. Another view, expressed for example by Tokman (1992), sees informal business owners as individuals who are trying to make a living while they search for a wage job.

I used to be partial to the De Soto view. However, a few years ago, I wrote a paper on the impact of a business registration reform in Mexico (Bruhn, 2008), expecting that I would find that the reform led informal business owners to register their business. Surprisingly, this is not what I found. The reform had positive effects, creating more registered businesses and employment, but these businesses came from wage earners setting up new businesses, and not from informal business owners registering.

Could leveraging Public Credit Registries’ information improve supervision and regulation of financial systems?

Jane Hwang's picture

“You never want a serious crisis to go to waste.”
Rahm Emanuel, former White House Chief of Staff

Looking in the rearview mirror, the recent U.S. subprime crisis seemed to be precipitated by a cauldron of events which were embedded in the fundamental problem that credit risk management was compromised on various levels. Naturally with a few years of hindsight, academics, economists, regulators, and supervisors have all wondered how the crisis could have been adverted or at least mitigated.

In this light, the existence of information data gaps and the importance of complete, accurate and timely credit information in the financial system have become more poignant. As a result of accelerated financial innovation, the banks offered new, but opaque, vehicles for investment. This made it difficult to assess risk levels and the true extent of credit leverage. Thus, as financial institutions began to develop and issue more convoluted instruments, credit risk management became more imprecise and at times erroneous. Without proper regulatory oversight and amid highly liquid credit markets (i.e. high demand for CDOs, ABSs, etc.), it further enabled banks to loosen their lending policies and thus continue to take riskier positions. As this occurred, banking supervisors and regulators often lacked the appropriate information to readily monitor the developments unfolding in the marketplace.

Financial Stability Reports: What Are They Good For?

Martin Cihak's picture

Words, words, words: do they matter in finance? And, more to the point, do reports on financial stability have an impact on, say, financial stability? New research suggests that the answer is a qualified “yes”: such reports can actually have a positive link with financial stability, if they are done well. Reports that are written clearly, are consistent over time, and cover the key risks to stability are associated with more stable financial systems.

Publishing reports on financial stability has been a rapidly growing industry, with more and more central banks and other agencies around the world now publishing such reports. As of early 2012, around 80 such reports are being issued on a regular basis (Figure 1). The stated aim of most of these reports is to point out key risks and vulnerabilities to policy makers, market participants, and the public at large, and thereby ultimately helping to limit financial instability.

Figure 1. The number of countries that publish financial stability reports


Source: Čihák, Muñoz, Teh Sharifuddin, and Tintchev (2012).

New Paper on Financial Regulation Recognized by ICFR and Financial Times

Asli Demirgüç-Kunt's picture

More than three years after the onset of the global financial crisis, a plethora of regulatory reforms are being put in place. The Basel Committee has prepared new capital and liquidity requirements, and the Financial Stability Board has kicked off an impressive agenda of reform. But implementation has been far from straightforward, and domestic priorities have often been in conflict with attempts at regulatory convergence. Against this background, the International Centre for Financial Regulation (ICFR) and the Financial Times invited submissions for a research prize in financial regulation, calling for essays that would consider “what good regulation should look like”.

The call resulted in an interesting set of ten top-rated essays. One of them is a new paper that we co-authored with R. Barry Johnston, based on some of the background work for the World Bank’s upcoming 2013 Global Financial Development Report. In our piece (which of course represents only our views and not necessarily those of the World Bank), we answer the organizers’ question by saying that “good regulation needs to fix the broken incentives.” Or, to paraphrase a 1990s campaign slogan, “it’s the incentives, stupid.”

Re-thinking Financial Systems Design in India

The first IFMR Financial Systems Design Conference was held in Chennai on August 5th and 6th, 2011. Hosted by IFMR and IFMR Finance Foundation, the conference aimed to take a step back from specific institutional frameworks, products and regulatory architectures and take a more fundamental and functional view of the financial system, and thereby attempt to understand what can be done to improve the ability of the Indian financial system to fulfil its functions effectively. The conference brought together a group of leading researchers and practitioners in the Indian financial system. In his introductory remarks, Dr. Nachiket Mor observed that “we are at a time when many of the historic imperatives which led to the current design of our financial systems are perhaps no longer valid and that, as a uniquely advanced but also very poor country urgently in need of sustained and rapid growth and development, we have the opportunity to do things in a way that other countries do not.”

To provide some context, while the Indian financial system has steadily evolved over the years, it continues to lag behind in terms of size (financial firms growing much slower than needs of the real economy), spread (80% of Indian villages do not have a bank branch in a 2 KM radius, more than 50% of small business financing happens through informal sources), scope (roughly 50% of the population has a bank account, about 10% have life insurance and less than 10% participate in equity markets in any form), innovation (securitisation, credit derivatives and corporate bond markets are tiny) and diversity of ownership (largest financial firms are Government owned).

Did the U.S. Taxpayer Really Make a Profit on the Bank Bailouts?

Deniz Anginer's picture

CNN Anchor Erin Burnett mocked the Occupy Wall Street protest during her show recently. Burnett asked a protester if he knew taxpayers “actually made money” on the Wall Street bailout. The protester responded that he was “unaware.”

“Yes, the bank bailout made money for the taxpayers, right now to the tune of $10 billion,” Burnett said. “These are seriously the numbers. This is the big issue? So…we solved it.”

As that exchange demonstrates, the bailout was a success or a failure depending on how you look at it. If you look at direct cash expenditures and receipts, the government has broken even or perhaps made a profit. But that doesn’t seem correct to many. Intuitively, many people from across the political spectrum have a strong suspicion that there are other costs that are not being captured by direct dollar figures.

Lucian Bebchuk’s Response on Executive Pay and the Financial Crisis

Lucian Bebchuk's picture

In his opening statement, René Stulz relies on the results of the Fahlenbrach-Stulz study (FS study) to reject the view that executive compensation has contributed to the financial crisis. Stulz argues that the evidence in his study is “inconsistent with the view that banks performed poorly because CEOs had poor incentives.” However, as explained below, the FS study does not provide a good basis for rejecting the poor incentives view.

The FS study attempts to test the “poor incentives” hypothesis by examining whether banks whose CEOs had larger equity holdings performed better during the crisis. Failing to find such an association – and indeed finding that such banks performed worse – the FS study rejects the poor incentives hypothesis. But the poor incentives view does not attribute poor risk-taking incentives to relatively low equity holdings, and the analysis in the FS study does not supply an adequate test of this view.

As I explained in my opening statement, the poor incentives view does not regard large equity holdings as the way to ensure good risk-taking incentives and does not view poor incentives as rooted in insufficient equity holdings. Rather, as I explained, poor incentives have resulted from (i) design of equity compensation (as well as bonus compensation) that rewarded executives even for short-term results that were subsequently reversed, and (ii) linking executive payoffs only to payoffs for shareholders and not also to payoffs for other contributors of capital to financial firms (such as bondholders).

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