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Asli Demirgüç-Kunt's blog

Eighteenth annual international banking conference: The future of large, internationally active banks

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On November 5–6, the Federal Reserve Bank of Chicago hosted its annual International Banking Conference, which we at the Bank co-sponsored. This year’s topic “The Future of Large, Internationally Active Banks,” which we picked to correspond to the topic of our upcoming Global Financial Development Report (GFDR) is very timely and important given that regulatory reforms addressing large, international banks, which will affect the economies around the world, are still ongoing. For example, just a few days after the conference, on November 9, the Financial Stability Board (FSB) issued its final Total Loss-Absorbing Capacity (TLAC) standards, which is expected to make banking systems more resilient by addressing the too-big-to-fail issue and was one of the issues hotly debated throughout the conference.

Launching the 2014 Global Findex microdata

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I am pleased to announce the release of the 2014 Global Findex microdata, which includes individual-level responses from almost 150,000 adults around the world. You can download it all here.

Drawing on interviews with adults in 143 countries, the 2014 Findex database measures account ownership at banks and other financial institutions and with mobile money providers, and explores how adults save, borrow, make payments, and manage risk. For each of these countries, the microdata unpacks about 1,000 individual-level survey observations.

With this data, which was collected by Gallup, Inc. in calendar year 2014, you can dive deeper into the indicators presented in the main Findex database. For example, the country-level indicators explore the income gap by looking at adults in the poorest 40 percent and richest 60 percent of households, but the microdata splits it into quintiles. The microdata also covers topics that weren’t included on the country-level, such as unbanked adults' reasons for lacking an account.

For a more detailed discussion of Global Findex findings and methodology, visit our website and see our working paper.

I hope you will make good use of the data, and share your findings with us on Twitter @GlobalFindex.

Hot off the Press: The Global Financial Development Report 2015/2016 on Long-Term Finance

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GFDR 2015 Book CoverIn recent years, long-term finance has increasingly attracted interest from policy makers, researchers, and other financial sector stakeholders. Policymakers are often concerned when they see limited use of long-term finance in their countries since limited availability may adversely affect growth and welfare.  These concerns were further heightened after the global financial crisis since availability of long-term finance was perceived to be reduced following the crisis, adversely affecting the performance of small and medium enterprises and widening financing gaps for investment.

In fact, ensuring more and better long-term finance has become one of the priorities for the post 2015-Agenda (United Nations 2013). Concerns about the detrimental development effects of a potentially constrained supply of long-term finance have been voiced in the Group of Twenty (G-20) meetings and by the Group of Thirty and ensuring more and better long-term finance is one of the priorities for the post 2015-Agenda (United Nations 2013). This year’s Global Financial Development Report (GFDR), the third in the series, is a synthesis of recent and ongoing research aiming to identify those policies that work to promote long-term finance and those that do not, as well as areas where more evidence is still needed.

Updated Global Findex: 62% of adults have an account; 2 billion still unbanked

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Today we release our new research paper and the 2014 Global Findex dataset, an updated edition of the world’s most comprehensive gauge of global progress on financial inclusion. It’s based on interviews with almost 150,000 adults in more than 140 countries worldwide.

We have plenty to celebrate:

  • Account penetration is deepening in every region. Sixty-two percent of the world’s adult population has an account, up from 51 percent in 2011, when the Global Financial Inclusion database (as it’s known formally) was launched.
  • The ranks of the unbanked are shrinking Worldwide, the number of adults without an account tumbled by 20 percent, to 2 billion.
  • Mobile money accounts — accessed via mobile phone — is powering Sub-Saharan Africa’s march toward financial inclusion. While just 1 percent of adults globally use a mobile account and nothing else, 12 percent of adults in Sub-Saharan Africa have a mobile account — versus just 2 percent worldwide. Of those adults in Sub-Saharan Africa with a mobile account, 45 percent rely on that account exclusively.

The 2014 Global Findex

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The Little Data Book on Financial Inclusion I’m thrilled to announce the April 15 launch of the 2014 Global Findex database, the world’s most comprehensive gauge of global financial inclusion. Drawing on interviews with almost 150,000 adults in over 140 countries, the Global Findex tracks worldwide changes in account ownership and explores how adults save, borrow, make payments, and manage risk. Financial inclusion, measured by the Global Findex as having an account that allows adults to store money and make and receive electronic payments, is critical to ending global poverty. Studies show that broader access to, and participation in, the financial system can boost job creation, increase investments in education, and directly help poor people manage risk and absorb financial shocks.

Our research updates the first Global Findex database, which the World Bank launched in 2011 in partnership with Gallup, Inc. and with funding from the Bill & Melinda Gates Foundation. Their continued support made it possible to add new features to the second edition of the database, including more nuanced questions on mobile banking and an extended module on domestic payments. The 2014 Findex for the first time sheds light on how adults use accounts — and what can be done to have people become more active users of the financial system.

There is much good news to report…. But to learn the details, you’ll need to follow our data launch during the annual World Bank-IMF Spring Meetings.

Call for Papers for the IMF / CFD conference: Financing for Development

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The Financing for Development conference, organized by the IMF and the CFD, will take place at the Graduate Institute, Geneva, on April 16-17, 2015. The objective of the conference is to discuss new and enduring questions in development finance for Low-Income Developing Countries. The conference will include paper presentations, a policy panel, and a keynote address by Professor Jeffrey Sachs (The Earth Institute, Columbia University). A selection of papers will be published in a special issue of the Oxford Review of Economic Policy. Read more about the call for papers and the conference.

How does financial development affect firm lifecycle?

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In a new paper, we address this question using detailed manufacturing census data from India. India offers an ideal laboratory for testing the role of institutions on firm lifecycle given the large persistent differences in institutions, business environment, and income across different regions. Specifically, we examine the relationship between plant size, age, and growth and ask: how does local financial development influence the size-age relationship? Are there differences in the size-age relationship across different industry characteristics and between the formal and informal manufacturing sector and does this vary with the extent of local financial development? Does the role of local financial development on firm lifecycle vary with major regulation changes in India such as financial liberalization, changes in labor regulation, and industry de-licensing?

Deposit Insurance Database — newly updated!

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In a recent paper with Luc Laeven and Ed Kane, we have now updated our database of deposit insurance arrangements around the world through 2013.  Our starting point was the World Bank’s survey on regulation and supervision conducted in 2010.  This survey asked national officials for information on capital requirements, ownership and governance, activity restrictions, bank supervision, as well as on the specifics of their deposit insurance arrangements. We combined this data with the deposit insurance surveys conducted by the International Association of Deposit Insurers in 2008, 2010, and 2011, and in the case of European countries with detailed information on deposit insurance arrangements obtained from the European Commission (2011). Finally we checked discrepancies and data gaps against national sources, including deposit insurance laws and regulations, and IMF staff reports. Following Demirguc-Kunt, Kane, and Laeven (2008), we assume any country that lacks an explicit deposit insurance scheme has implicit deposit insurance given the widespread governmental pressures to provide relief in the event of a widespread banking insolvency.

Do firms in developing countries grow as they age?

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The answer is yes, but not as fast.  In the U.S. for example, we know that new businesses start small, and if they survive, grow fast as they age. An average 40 year old US plant employs over seven times as many workers as the typical plant five years or younger. In a new paper, my co-authors Meghana Ayyagari, Vojislav Maksimovic and I focus on developing countries and look at what happens to firms in the formal sector as they age. We focus on formal firms because informal firms look very different from formal firms in terms of size, productivity and education level of managers and there is little evidence that growth occurs by informal firms eventually becoming large formal establishments. We see that there the average 40 year old plant employs almost five times as many workers as the average plant that is five years or younger.

Deposit Insurance and the Global Financial Crisis

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How does deposit insurance affect bank stability?  This is a question that has been around for a while but has come up again after the global financial crisis.  In response to the crisis, a number of countries substantially increased the coverage of their safety nets in order to restore market confidence and to avert potential contagious runs on their banking sectors.  Critiques worry that such actions are likely to further undermine market discipline, causing more instability down the line. My earlier research on this issue suggests that on average deposit insurance can exacerbate moral hazard problems in bank lending, making systems more fragile.  In other words, particularly in institutionally under-developed countries, banks have a tendency to exploit the availability of insured deposits and increase their risk, making the financial system more crises prone.  This is ironic since deposit insurance is supposed to make the systems more stable, not less.

But what if the impact of deposit insurance on stability varies depending on the economic conditions? Does deposit insurance help stabilize banking systems by enhancing depositor confidence during turbulent times?