Transcript here - Transforming Finance

Transforming finance
conference
May 10, 2013, London
Professor Stephany Griffith-Jones
Financial Markets Program Director at
the Initiative for Policy Dialogue
[email protected]
www.stephanygj.net
www.policydialogue.org
Overall context
Aims of the financial system
-Managing risk, rather than creating it
-Allocating capital to the real economy
efficiently; supporting development
-Financial system did neither properly
Do we need very different financial system?
-Restricting or isolating speculation
-Financial system serves real economy
Historical context (brief)
• 1930s Crash and Great Depression
• Major regulation of finance, Glass-Steagall
• Practically no crises for 40 years; crises
avoidable if good regulation & small fin sector
• Major deregulation and liberalization 1980s
• Many crises in developing world
• North Atlantic crisis, since 2007
• Crises became the new normal
Major challenges for regulation
include
• Macro-prudential regulation to compensate
for pro-cyclical finance
• Need for comprehensive regulation major
challenge, to include shadow banking; what
quacks like a duck shd be regulated like a duck
• Separating and/or limiting “speculative”
finance. Volcker, Vickers, Likkannen
• Possibly reducing size,leverage, opaqueness
and complexity financial sector(Solow, IMF,
BIS, Griffith-Jones)
Counter-cyclical regulation
• Need for counter-cyclical regulation to
compensate for pro-cyclical finance
• History; dynamic provisioning successful
• Rules preferable to discretion
• Can be done via capital requirements,
provisions and loan to value ratios
• Capital account management part EE macroprudential regulation; now accepted by IMF
Basle 3
• Size and quality of core capital improved (but
is it enough?)
• Simple leverage ratio 1:30 (too generous)
• Counter-cyclical regulation
• Liquidity coverage ratio positive
• Does not deal enough with sources of
systemic risk, like eliminating links between
more speculative and utility banking
Implications of North Atlantic crisis
for developing countries
• Traditional advice that deeper and more
complex financial sector always good for
growth and development challenged. IMF
and BIS recognize this in 2012
• Challenges for developing countries
Desirable scale and structure fin sector.
Rigorous domestic regulation
Major challenge for developed countries
Role for public development banks
• Where markets fail, governments need to act
• Successful public banks, KfW, BNDES, EIB
major support for growth
• Do major counter-cyclical lending in crises
• Fund SMEs, infrastructure, green economy
• Can finance development strategy
• British Investment Bank very desirale
• Can leverage public resources
European pro growth policies
• Pan European measures
• Countries without market
access
• Countries with market
access; the UK case
Pan European measures
• Role of the EIB and of Structural Funds
• Doubling capital of EIB and creating project
bonds
• Can lead to increased resources of E 60 billion
annually
• Leverage implies net contribution from EU
governments is small
• Can lead to 1 million EU jobs at least, as well
as ½ % extra EU GDP by 2014
Table 2: Additional proposed EIB and EU growth expenditure
programme (in billions Euros)
2012 2013 2014-2015 (annual) 2016-2020 (annual)
Additional EU budget
15
15
25
Additional EIB lending total
20
45
35
-- Risk buffers
10
10
10
-- Capital increase
10
35
25
25
Figure 1: Additional proposed EIB and EU growth
expenditure programme (billions of Euros)
70
60
In Billions of Euros
50
40
Additional EIB
lending total
30
Additional EU
budget
20
10
0
2012
2013
2014-2015
(annual)
2016-2020
(annual)
National policies
• Countries with limited market access need to
have their debt servicing costs lowered
• Promise unlimited ECB purchases of
government debt significantly lowers spreads.
Needs slower fiscal consolidation
• Option of postponing debt service; precedents
• Country with market access, like UK, can
postpone fiscal consolidation; this could imply
16% more of GDP according to modelling
Table 3: GDP in £ billion, 2010 prices under
two scenarios
•