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Finance—Good, Bad, or Something in Between? Tell Us What You Think…

Martin Cihak's picture

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!

To get a better sense of the balance of views and opinions on key financial development topics, my colleagues and I have organized a global informal poll of opinions and attitudes among financial sector professionals. This poll—the 2011/12 Financial Development Barometer—is a part of a broader effort related to the Global Financial Development Report, a new annual report of the World Bank Group. The Barometer will be carried out annually to help identify sentiments and views on important policy issues related to the financial system.

The participants in this year’s Financial Development Barometer included central bankers, finance ministry officials, financial sector supervisors, academics, and many others working on financial sector issues. Some of the participants were past and present participants in the World Bank’s annual Overview Course on Financial Sector Issues as well as respondents in the World Bank’s Banking Regulation and Supervision survey. Overall, the poll covered respondents from 78 countries, comprising about 30 percent advanced economies and 70 percent emerging markets and developing economies. The Barometer is an informal, non-scientific, poll. Nonetheless, it provides interesting insights into views of country officials and other experts on financial development.

The survey contains some 30 questions. One block consists of general questions on financial development. These general questions will remain the same in future editions of the Barometer, to allow for comparisons over time. The other main block contains specific questions that focus in more detail on one particular aspect of finance. These questions may change from year to year.  This year, the questions focused on role of the state in the financial sector, reflecting the theme of the 2013 Global Financial Development Report: Rethinking the Role of the State in Finance.

So, what does the Barometer tell us about the prevailing views on financial development? Interestingly, 90 percent of the respondents perceive that the positive effects of finance (such as those on economic growth and on reducing poverty) outweigh its potential negative effects (in particular, financial crises). A majority therefore see that their countries’ financial sector needs to grow, especially in terms of financial markets and non-bank financial institutions, to better serve its clients and expand to new ones.

As regards the role of the state in the financial sector, the Barometer indicated numerous areas of broad agreement. For example, there is widespread support for the notion that state-owned financial institutions and government-backed credit guarantees might play a useful role in principle. The poll also shows many respondents seeing potential benefits for more stringent supervision of new financial instruments in light of the crisis. A majority also sees scope for a more active role of the state in promoting technological innovations in financial infrastructure.

The Barometer also indicated many key policy areas where the views “for” and “against” are almost evenly split. As illustrated in Table 1, country officials and other financial sector experts often hold opposing views and opinions on the pros and cons of state interventions.  This includes for example opinions on the need for stringency and greater scope of regulation and supervision, the pros and cons of greater competition in countries’ financial systems, the possible counter-cyclical role of state-owned financial institutions, and the role of the state in promoting information sharing—all topics that are examined in the 2013 Global Financial Development Report.

 

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 counter-cyclical 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

 

The survey also asked participants, among other things, to indicate what they would consider the “optimal” market share of majority state-owned banks in their country’s banking system. Again, the responses (Figure 1) suggest a rather broad dispersion of views, with most respondents supporting only a limited role for state-owned banks in their banking sectors, while others see a much larger role for  state-owned banks, perhaps even larger than privately owned banks. It will be interesting to see how the views on these and other topics evolve in the future iterations of the survey.

What are your views? It would be very useful to see to what extent these views collected so far from the country officials and the other respondents differ from those provided by you, our online readers. For this purpose, we have uploaded an online version of the Barometer questionnaire. We would really appreciate if you could fill it in. It takes just one click and no more than 10 minutes of your time. Individual responses are treated in confidence and not shared with others. Many thanks in advance for your participation.

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