Transcript Savings banks, institutional biodiversity and social

Globalisation and the experience
of proximity banking
“Savings banks: the retail gateway to a global market.
Driving sustainable development”
Prof. Santiago Carbo-Valverde, University of Granada,
Spanish Savings Banks Research Foundation (FUNCAS)
Jose-Maria Mendez, Secretery General,
Spanish Savings Banks (CECA)
21 – 22 September 2006, Kuala Lumpur
Savings banks, institutional
biodiversity and social
contribution
Santiago Carbó (University of Granada)
José M. Méndez (CECA)
Panel “Globalization and the experience of
proximity banking”
WSBI Congress, Kuala Lumpur, Sept. 2006
SUMMARY
1. Institutional biodiversity around the
world: the role of savings banks.
2. Regulation and savings banks growth:
confronting views around the world.
3. The contribution of savings banks:
instruments for growth and access to
finance in a global economic environment.
3
OVERVIEW: This presentation is based upon two articles:
- Carbó, S. and J.M. Méndez (2006): “The relevance of the
diversity of bank ownership structures in European
banking”, Perspectivas del Sistema Financiero,
forthcoming.
- Carbó, S. (2006): “Banks and markets as mechanisms for
economic growth: new perspectives”, Papeles de Economía
Española, forthcoming.
Both articles can be found at:
http://www.funcas.es and http://www.ceca.es
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1. Institutional biodiversity
around the world: the role of
savings banks
•
Globalization, integration and harmonization are perfectly
compatible with institutional biodiversity (UN Blue Book
‘Building Inclusive Financial Sector for Development’ )
•
However, they are typically presented as confronting views.
•
The few studies that deal with these issues up to date suggest a
significant contribution of institutional biodiversity on the
competition, efficiency and social contribution of the financial
sectors around the world (Prowse, 1995, 1997; Carbó, Gardener
& Williams, 2002; Crespí, García-Cestona & Salas, 2004).
•
UN emphasizes the approach to poverty-reduction needs to be
done through local development (The first UN Millennium
5
Development Goal).
There is an intense trend towards consolidation of large
banking groups. Cross-country and national
concentration –M&As- have produced what are known as
(LCFI) “large and complex financial institutions”.
Total Assets of the Top 20 banks in the World (2004-2006)
($ million)
35.000.000
30.000.000
30.000.000
24.309.319
25.000.000
20.000.000
21.565.819
18.301.966
15.000.000
10.000.000
5.000.000
2.004
2.005
2.006
2.010
(estimated)
Source: The Banker (2004-2006): "The Top One Thousand World Banks“
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UN, Blue Book ‘Building Inclusive Financial Sector for
Development’: “Multiple types of financial services
providers (private, non-profit and public) may well
coexist in competitive economies”
STOCK (PLC, AG,
SA)
- Shares, market
control
- Concentration
and advantages in
market-based
systems
- Governance and
voting rules issues
- Growth through
M&As
COOPERATIVES
- Democratic
structure, selfcontrol
- Equilibrium in
profit distribution
- Flexible
organization
- Specialization
OTHER STRUCTURES
- A variety of institutions mixing
characteristics from the other
three with different degrees of
public or private participation,
own regional or national rules,
different degrees of government
protection, etc…
FOUNDATIONS
- Built on social
grounds
-Credit
institutions+
Foundations
(solvency+social
contribution)
- Democratic
structure, selfcontrol
- Dynamic
evolution,
flexibility,
cooperation
- Specialization
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Integration, financial policies
and institutional diversity: the
European case
•
A progressive recognition of institutional diversity within the
framework of European financial integration and harmonization
policies:
–
European Commission (McCreevy report, FSAP): Single European
Market, competition in retail activities, homogenous supervision
and control. European Commission (Green Paper & White Paper of
Financial Services Policy): dynamic consolidation, no barriers to
entry, open European market.
–
European Parliament (Towards a higher consolidation on the
financial services sector) and EC, DG Competition (II Interim
Report on current accounts and related services): advantages of
institutional diversity.
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Some advantages of institutional diversity
(II Interim Report on Current Accounts and
Related Services, EC, DG Competition)
–
Countries with higher institutional diversity exhibit
the lower levels of bank concentration in relevant
markets (ie. Germany, Spain, Italy).
–
Several countries with a higher level of institutional
diversity are found among those showing the highest
levels of profitability.
–
Institutional diversity is also related to the highest
levels of efficiency (‘cost/income’ ratio around 50%).
CONCLUSION: RETAIL FINANCIAL SERVICES AND TECHNOLOGY
ARE BETTER PROVIDED IF THERE IS A VARIETY OF
INSTITUTIONS
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2. Regulation and savings banks growth:
confronting views around the world
•
Proximity banks promote financial inclusion and social
cohesion.
•
Institutional and regulatory environments vary but the
social contribution holds. Let’s compare two cases:
–
–
The European model (savings banks).
The US model (community banks).
•
Higher performance and institutional growth in Europe
(Germany, Spain) compared to the US in recent years
but both develop an important role at local and regional
levels.
•
Regulatory experiences differ in their focus worldwide.
For example, in Europe it is rare to find regulatory
actions such as the US Community Reinvestment Act.
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•
US community banks promote:
• Local leadership on investments considered
beneficial.
• Special lending programs.
• Low degree of loan default and new
mechanisms of credit risk management.
•
European savings banks typically develop
these activities with less regulatory burden
and also compete directly and actively with
other private institutions, making a social
contribution at the same time.
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3. The contribution of savings banks:
instruments for growth and access to finance
in a global economic environment
Building an indicator of institutional diversity:
•
Institutional diversity (1): number of (institutions)
savings and cooperative banks as a percentage of total
institutions.
•
Institutional diversity (2): number of (institutions)
savings banks as a percentage of total institutions.
–
Germany is given the value 100 and all countries are re-scaled
relative to Germany.
Source: Bankscope microdatabase.
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United States
EU-25
EU-15
United Kingdom
Sw eden
Finland
Slovaquia
Slovenia
Portugal
Poland
Austria
Netherlands
Malta
Figure 1. Institutional
diversity in the EU-25
and the United States
Hungary
Luxemburg
Lithuania
Latvia
Cyprus
Italy
Ireland
France
Spain
Greece
Estonia
Germany
Denmark
Czech Republic
Belgium
0,00
20,00
40,00
60,00
80,00
100,00
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Institutional diversity (1)
Institutional diversity (2)
Some general outcomes from simple
comparisons
(employing the second indicator of institutional
diversity that shows the relative weight of savings
banks)
PROFITABILITY
Re tur n on e quity (%)
PRICES/COMPETITION
Ne t inte re s t m argin (% total as s e ts )
14,00
13,90
13,80
13,70
13,60
13,50
13,40
2,50
2,00
1,50
1,00
0,50
0,00
High
institutional
diversity
Low
institutional
diversity
High
institutional
diversity
EU-25
Low
institutional
diversity
EU-25
EFFICIENCY
(cos t/incom e ratio, %)
61,00
60,50
60,00
59,50
59,00
58,50
High
institutional
diversity
Low
institutional
diversity
EU-25
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Savings banks and economic growth: the
variety of growing mechanisms increases with
institutional diversity
Standard errors in parenthesis
Estimations for
81 countries
C
Finance-growth
channel works
GDP growth (t-1)
Investment growth (t-1)
Credit to the private sector / GDP
Stock market capitalization / GDP
More variety of
finance-growth
mechanisms in
countries with
higher
institutional
diversity
GDP growth
High
Low
institutional
institutional
diversity
diversity
0.423*
0.306**
(0.072)
(0.059)
0.314***
0.222***
(0.196)
(0.108)
Growth rate of commercial activities
Economic Freedom
Government quality
Overall significance (F-test)
Sargan test
-
-
0.427***
(0.072)
0.221**
(0.083)
0.271***
(0.035)
0.613***
(0.035)
0.429***
(0.060)
0.002
0.315
0.216**
(0.049)
0.135***
(0.121)
0.105*
(0.126)
0.276***
(0.042)
0.320***
(0.042)
0.002
0.324
Investment growth
High
Low
institutional
institutional
diversity
diversity
-0.879**
-0.663**
(0.327)
(0.126)
-
-
0.137***
(0.044)
0.328***
(0.202)
0.341**
(0.059)
0.043***
(0.068)
0.301***
(0.026)
0.125***
(0.044)
0.003
0.207
0.076*
(0.045)
0.144
(0.062)
0.227*
(0.055)
0.033*
(0.045)
0.345***
(0.062)
0.336***
(0.102)
0.002
0.268
* statistically significant at 10%
** statistically significant at 5%
*** statistically significant at 1%
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Source: FUNCAS (2006)
Social contribution of savings banks: a
distinctive feature
•
An increasing problem of financial exclusion (Peachy
and Roe-WSBI, 2004) in developed countries.
•
Globalization and commercial and financial
liberalization as an opportunity. Institutional ‘quality’
involves financial institutions (Doha Agenda, WTO) and
institutional diversity may help.
•
Savings banks becoming important drivers of new
financial flows for potentially excluded populations (eg.
platforms for remittances in Germany and Spain,
among others).
•
Less financial exclusion in countries with higher
institutional diversity.
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Some conclusions: pluralism vs. homogeneity
•
Regulation (or deregulation) must be applied in
a way that enhances biodiversity and systemic
stability without compromising financial
access. The pluralism has many advantages,
inter alia:
–
–
–
–
Higher range of financial services for customers and, in
particular, for households and SMEs.
Lower degree of financial exclusion in financial systems with a
larger degree of institutional diversity.
Compatibility of institutional diversity with supervision rules
harmonization.
Higher range of possibilities and products to adapt to highly
global and liberalized commercial and financial environment.
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