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What factors triggered the liquidity risk of the mortgage SOFOLs in Mexico?

Eduardo Mendoza's picture

The year 1994 saw the birth of the SOFOLs[1] in Mexico. These societies are non-bank financial institutions (NBFIs). One feature of these institutions is that the financial resources they supply must be exclusively directed to funding a market niche, e.g. consumption credit, commercial credit, mortgages, or credit cards. Moreover, SOFOLs are not allowed to take deposits from the public. During 2000-2010, these institutions placed a significant amount of financial funds in almost every market niche, and many of them consolidated over time.

The stronger growth and best performance was registered by the SOFOLs that granted mortgages (mortgage SOFOLs). By the end of 2005 the financial resources granted by these institutions accounted for over 60% of the credit balance of all SOFOLs in México. However, their good performance did not last long: their funding flows and the number of societies began to decline in 2006. The global financial crisis of 2008 also affected their financial performance. See graph below.

Financial Inclusion and Legal Discrimination against Women: Evidence from Developing Economies

Asli Demirgüç-Kunt's picture

More than 1.3 billion women are excluded from the formal financial system. These women – the overwhelming majority of whom reside in developing countries – lack the basic financial tools critical to asset ownership and economic empowerment. Even something as simple as a deposit account provides a safe place to save and creates a reliable payment connection with family members, an employer, or the government. A formal account can also open up channels to formal credit critical to investing in education or in a business. Yet women are 15 percent less likely than men to be financially included.  Why?

In a new study and summary companion note we document and analyze gender differences in the use of financial service using new data from the Global Financial Inclusion (Global Findex) Database. Our analysis is based on almost 100,000 interviews with adults in 98 developing economies in 2011. We also combine the Global Findex data with cross-country data on legal discrimination against women from the World Bank’s Women and Law Database and on cultural norms from the OECD’s Gender, Institutions, and Development database to examine their relationship with financial inclusion. Because the later country-level variables show no variation across high income economies, our econometric analysis focuses on a sample of up to 98 developing countries.

Mainstream Media for Social and Financial Change

Bilal Zia's picture

 

Financial illiteracy remains a pressing problem in the developing world and a myriad of financial literacy programs are now underway to educate and help poor individuals make informed financial decisions. Research on the effectiveness of such programs lags considerably behind implementation, but several evaluations are now underway to understand mechanisms of impact.

But even the best designed, most attractive education tools may fail to reach everyone in a cost-effective manner; and not everyone in the target audience may be interested in taking time out of their daily lives to attend such sessions.

In recent research in South Africa, a colleague of mine, Gunhild Berg, and I tested the idea of taking financial education to the masses without disrupting their daily routines, and without incurring exorbitant production and delivery costs. And we did it, of course, by turning to television!

Sex and Credit: Is There a Gender Bias in Lending?

Thorsten Beck's picture

Group identity in the form of family, ethnicity, or gender is a powerful predictor of social preferences, as shown by theory and empirical work. In particular, people generally favor in-group over out-group members. Such favoritism can have positive or negative repercussions. On the one hand, it can lead to inefficient transactions and lost opportunities. On the other hand, group identity may also entail trust, reciprocity, and efficiency due to shared norms and understandings. In recent research with Patrick Behr and Andreas Madestam, we gauge these opposing hypotheses, examining one important form of group identity, gender, and the consequences of own-gender preferences for outcomes in the credit market. We use microcredit transactions as they are an ideal ground to test these different hypotheses, relying heavily on transaction between loan officers and borrowers.

Access to bank credit after corporate default

Diana Bonfim's picture

During the last decade the literature on factors affecting corporate default increased exponentially. However, surprisingly little is known about what happens to firms after they default on their bank loans. How many firms are able to overcome the financial distress that led to the default on bank loans? Do these firms regain access to credit? How fast is this process? Which firms have more difficulty in regaining access? In this article, we shed some light on these important questions.

We take the occurrence of defaults as given and analyze what happens to the ability of firms to access credit markets after an episode of financial distress. This is a relevant question, as not all the firms that default on their debts are economically unviable. In many cases, firms default on their liabilities due to unexpected events which do not compromise their economic viability. This question relates closely to the literature on default recoveries but it goes one step further and asks about the ability to borrow again after an episode of financial distress.1

Cyprus: Some Early Lessons

Thorsten Beck's picture

The crisis is Cyprus is still unfolding and the final resolution might still have some way to go, but the events in Nicosia and Brussels already offer some first lessons. And these lessons look certainly familiar to those who have studied previous crises.  Bets are that Cyprus will not be the Troika’s last patient, with one South European finance minister already dreading the moment where he might be in a situation like his Cypriot colleague.  Even more important, thus to analyze the on-going Cyprus crisis resolution for insights into where the resolution of the Eurozone crisis might be headed and what needs to be done.

Cyprus Bank Bailout – Should Depositors Pay the Bill?

Asli Demirgüç-Kunt's picture

The Cypriot banking system is insolvent and desperately in need of a bailout. Like Ireland, this island banking system has expanded rapidly over the years and currently has assets equal to almost 7 times its GDP, making the system too big to fail, but also "too big to save." Funding needed to recapitalize the banks is currently estimated to be around 17B euros (almost 100 percent of Cypriot GDP) making it impossible for Cyprus to resolve its crisis alone. A 10B euro rescue package was recently negotiated, but the bailout package proposed by the Troika — made up of the IMF, the EU and the ECB — still leaves Cypriots to come up with a sizable sum. The question is what to do.

The recent bailout plan proposed by the government (yet rejected by the Cypriot parliament) sparked significant controversy globally because it required a depositor levy to "bail in" all depositors to help pay for the bailout. On the one hand, the proposal is seen as violating the deposit guarantee and risk leading to bank runs elsewhere in the Euro Area and beyond. On the other hand, the Cypriot government felt the need to turn to depositors because a full bailout is out of the question given their debt burden will already reach unsustainable limits even with the partial bailout; most of their sovereign debt is under English law and cannot be restructured; their banks have few bonds to be written down; and about half of their depositors are rich Russian depositors attracted by their favorable tax system.

How effective is monetary policy in the absence of bank competition?

Alfredo Mier y Teran's picture

In the wake of the Great Recession there is a general consensus that monetary easing is key to stimulating investment and to strengthening economic recovery. However, there is a widespread concern that monetary stimulus is not reaching all markets evenly. For example, the International Monetary Fund (IMF, 2012) argues that monetary easing is allowing large corporations to access capital at record low rates, while small firms are struggling to obtain bank loans. Along the same lines, the president of the Federal Reserve Bank of New York suggests that the recent purchases of mortgage backed securities by the Federal Reserve were not effective in lowering primary mortgage rates, in part, because banks increased their margins.

Motivated by such concerns, in this paper I tackle the idea that bank competition affects the transmission of monetary policy across markets. In particular, I analyze the speed and completeness of the pass-through of the monetary policy rate to bank lending rates, and provide evidence on the importance of bank competition to explain heterogeneity in the way banks react to monetary policy impulses, using a unique transaction-level data set that includes all corporate loans of every commercial bank in Mexico from 2005 to 2010. For this purpose, I develop a simple model of the banking firm and test its implications using dynamic panel data methods.

One-stop shops: Do they or don’t they increase business registration?

Miriam Bruhn's picture

Reforms to make it easier to register a business are the most common type of reform tracked by Doing Business, with over 75 percent of countries adopting at least one reform in this area over the past decade. One of the most popular types of reforms is to set up "one-stop shop" service points by integrating different registration steps with different levels of government into a single streamlined process, lowering the time and/or cost needed to register a business.

A number of studies, all from Latin America, have examined the impact of one-stop shops on firm registration, exploiting cross-time and cross-municipality variation in the implementation of these reforms to conduct difference-in-difference analysis. Bruhn (2011) uses labor market survey data to show that a reform in Mexico, which was implemented in some of the most populous and economically developed municipalities, increased the number of registered businesses by about 5 percent. Kaplan, Piedra, and Seira (2011) find that the same reform increased the number of new firm registrations with the Mexican Social Security Institute (IMSS) by 5 percent, using administrative data. For Columbia, Cárdenas and Rozo (2009) use administrative data from Chambers from Commerce in six major cities to show that a one-stop shop also led to a 5 percent increase in businesses registrations.

The Next 30 Years: Whither Finance — Repression or Turbulence?

Michael Klein's picture

The recent financial crisis shocked the world. Aftershocks are still reverberating. The future of the Eurozone remains clouded. Much ink has been spilled about the causes of the crisis. Extraordinary measures have been taken to stimulate economies and rescue banks. Thousands of pages have been filled with new regulations. But will all the efforts bring us back to normal?

The crisis itself was a surprise for most. Equally surprising could be the long-term consequences. Rather than returning to "normal" we may see lasting shifts in the nature of financial systems. Two scenarios — "Repression" and "Turbulence" try to explore the new normal for financial institutions over the next 30 years. My paper written under the auspices of the Frankfurt School of Finance and Management in Germany explores the matter. The first part of the paper reviews relevant historical data and arguments about key drivers for the future such as financial regulation, prospects for growth and demographics. Illustrative numbers about long-term economic growth are derived from long-term projections by the OECD.

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