In “Securities Trading by Banks and Credit Supply: Micro-Evidence”, we explore the effects of the financial crisis on securities trading by commercial banks and the subsequent effect of the latter in credit supply. We find that banks with higher trading expertise increase their investments in securities in crises and decrease their supply of credit.
Banks today hold a considerable amount of securities among their assets. However, there is an important policy and academic debate as to whether they should be able to do so. The investment behavior of banks is portrayed in Figure 1, where was a sharp decline in price in the security around 2009; at the same time, German banks with higher trading expertise increased their holdings of said security.
- Financial Sector
Globally, around 2 billion people do not use formal financial services. In Southeast Asia, there are 264 million adults who are still “unbanked”; many of them save their money under the mattress and borrow from so-called “loan sharks”, paying exorbitant interest rates on a daily or weekly basis. Recognizing the importance of financial inclusion for economic development, the leaders of the Association of South East Asian Nations (ASEAN) have made this one of their top priorities for the next five years.
Last week, the World Bank Group presented the latest data on financial inclusion in ASEAN to senior representatives of the ministries of finance and central banks of all 10 ASEAN member countries (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam). The session, held in Kuala Lumpur, is one of the joint activities the new World Bank Research and Knowledge Hub and Malaysia is undertaking to support financial inclusion around the world.
Despite transformative innovations in digital technologies, the digital divide is still substantial. What can be done to spread digital dividends - that is, the broader development benefits of digital technologies – more widely? How can digital technologies contribute to the World Bank Group’s twin goals of eradicating extreme poverty and increasing shared prosperity?
As this year’s World Development Report on “Digital Dividends” notes, digital finance is likely to play a key role in answering these questions. One of the main messages of the report is that digital development is not a matter of access alone.
Digital connectivity is key, but it is only a starting point for successful digital development. It is as important to strengthen other factors that interact with technology - such as responsible regulation and accountable institutions - in order to make digital technologies work for the poor. The World Development Report calls these other factors the ‘analog complements’ to digital technologies, which fall into three categories: regulation, skills, and institutions.
With this week's kickoff of the 2016 China “Business 20” (B20) proceedings in Beijing, this is an opportune time to reflect on some of the key accomplishments of the 2015 Turkey B20. As many readers of this blog know, the B20 is the premier dialogue platform of the business community with the G20 policymakers representing the most important economies of the world, and it is influential in identifying and supporting policies that are crucial for overall economic development. I believe that taking stock of the past enables us to learn from both successes and failures, and helps sustain the momentum on what worked and generated the desired impact.
Looking back at my involvement as Chair of the B20 Steering Committee, what strikes me as a major achievement is the amplification of the voice of small and medium enterprises (SMEs). I believe that, if we want our economies to have healthy and inclusive growths, this must remain as a key priority for the upcoming B20 in China.
Participants in the Turkish G20/B20 process shared the assessment that SMEs’ potential was not being fully realized. SMEs account for about two-thirds of all private-sector jobs globally and about 80 percent of net job growth. They are the engine for equitable growth and poverty alleviation. And they are the backbone of the middle class and of social stability. Yet they suffer disproportionately from limited access to markets, finance, talent, skills and innovation. In addition, regulations also often put them at a disadvantage. Until recently, SMEs had lacked an organization that would champion their cause.
With these major issues in mind, and with strong deliberations of the B20 Leadership and support from the G20 Finance Ministers, last year TOBB and the ICC officially founded the World SME Forum (WSF), with the mission to help improve the overall growth and impact of SMEs globally, by effectively tackling the key challenges they face. WSF aims to provide SMEs with effective representation and to advance the recognition of the role of SMEs in the global economy by partnering with international financial institutions (IFIs) and development agencies. WSF has membership from associations and chambers working in the SME space from all over the world.
WSF is ready to represent SME interests with regional and global bodies, and to advocate for better rules and regulations among standard-setters.
As I am on my way to Beijing, I cannot help but think that this is indeed a major achievement, which will give the SME development agenda a much better chance at succeeding. WSF can be a “bridge” across B20 presidencies, so that we can ensure continuity in the crucial SME agenda. WSF can help avoid any loss of momentum on the implementation of the recommendations we develop during each cycle.
Even better, after B20 China officially decided to continue the SME Development Taskforce, which was started for the first time by B20 Turkey, they invited WSF to be a Business Network Partner for the Taskforce. WSF will therefore be coordinating the network and will help drive the ideas that emerge from the Taskforce discussions into implementation.
The invitation for new SAFE Trust Fund applications is now open until 7 March 2016
What is SAFE?
Retail payment systems are important to the smooth functioning of an economy. Inefficiencies in the retail payments market can have significant negative effects throughout the economy. Retail payments are defined as regular payments of relatively low value that are not time critical and where the payer and/or the payee is not a financial institution.
Cost efficiency has been at the forefront of arguments for moving from paper-based to electronic payment instruments. Studies have shown that significant savings can be achieved in the transition from cash and paper-based to electronic payment instruments.
However, inefficiencies persist, with cash still being “king” in many countries. Among the non-cash payment instruments, the check is still dominant in lower-middle-income and low-income countries and check processing can be cumbersome and costly.
As actuaries working in development, my colleagues and I in the Disaster Risk Financing and Insurance Program (DRFIP) are constantly looking for innovative ways to apply actuarial science in the fight against poverty. Because the DRFIP is a fairly new initiative — it was established in 2010 to improve the financial resilience of governments, businesses and households against natural disasters — a lot of questions are still to be asked, and lessons to be learned, about helping client countries better calculate financial risk and improve programs that change lives.
That said, exciting advancements are under way, as we learn through exchanging knowledge with experts across the World Bank and partners from other sectors. For example: Once, while on mission in Nairobi, I passed a local Social Protection colleague in the corridor and struck up a conversation that quickly turned to a challenge she was facing. The government of Kenya was aiming to develop a mechanism that would enable its Hunger Safety Net Program, a cash transfer program, to scale up financial assistance to poor families in the case of drought. However, in order to do this, they needed a better understanding of the financial costs of such a mechanism. As droughts are, by their very nature, unpredictable, trying to estimate this cost in advance was a challenge.
How can actuaries best contribute to the development agenda?
My colleagues and I thrive on looking for answers to this type of question every day. While there are other actuaries, both in the Bank and across the sector, the role we are developing from a risk-financing perspective is to help client countries quantify the financial value of unknown risks and develop financial strategies to manage them.
How can development practitioners promote economic development for parts of the Arab world affected by conflict and fragility? The Consultative Group to Assist the Poor (CGAP) has featured various solutions in a recent blog series on financial inclusion during crises. These blogs highlight the fact that although conflict, violence, and uncertainty make development difficult, solid financial infrastructure for small-scale lending can help people weather a crisis or, in other words, support their economic resilience.
To get the pulse of an institution’s financial management and its room for growth, we must first look at its financial statements. The information in these statements is, of course, essential but often provides only a partial picture focusing on short-term returns.
To understand the true value created by an organization, we need to look more broadly. This necessitates going beyond traditional financial reports and spending time understanding how the institution manages its non-financial resources.