Upload
farman-zakhilwal
View
51
Download
1
Tags:
Embed Size (px)
Citation preview
International Islamic University, Islamabad
Faculty of Management Science
Direct State Intervention
Chapter Four
Introduction
Ownership Structure around the World
Role of Government Bank Lending in Mitigating Economic
Cycle and Crisis.
Long Run Impact of Government Bank Ownership.
Government Intervention in Credit Market beyond Bank
Ownership.
Layout
State own banks were created for two purposesFilling the market gaps Giving access to finance for SMEs
• Different strategies were followed by different countries China , Germany , brazil used their state own
banks to step up financing to private sectorKorea , Malaysia ,Netherlands ,Canada ,Chile
relied heavily on credit guaranty programsUK and USA followed unconventional monitory
and fiscal policy
Introduction
Debate was started whether there is a need for direct government intervention or not One group was in the favor of direct government
intervention One group was against direct government
intervention
• the main summary of this chapter is • Lending by state owned banks are less procyclical • Focusing in the governance of these banks may help that what
are inefficiencies with these banks • The credit guarantee schemes were also a popular
intervention tool
Cont….
State owned banks have the whole banking asset before crisis : Developed economies 6.7% of GDP Developing economies 20.5%
After crisis Developed economies 8% (bailouts ,recapitalization ,
nationalization ) Developing economies 17.3% (massive privatization )• In Europe and central Asian countries decreased from88% in 1985 to 20% 2009 due to privatization • African banks have highest share of foreign banks • Eastern Europe has less than 5%
Ownership structure around the world
To stable aggregate credit.According to Bigg , mayor credit recovery may result in
economic recovery 2010. In 2008 and 2009 more than 80% of countries felt
recessionary situation in real output in also decrease in credit.
Credit stabilization by state banks is due to several reasons: 1: maybe part of their mandate to fill market gaps
2: maybe perceive saver during recession and crisis and their strong base allow them lending during the crisis.
In Canada, Chile Korea government injected capital in their state own banks in order to give access to finance to SMEs and exporting farms.
In India and Tunisia government established credit facilities for banks
Role of government banks in mitigating economic cycle and crisis
The government use its state own banks to play countercyclical in financial crisis.
Liquidity assistance line was created to in order to enable state commercial banks like BB and CEF to take interest ownership of some public and private institutions.
BB CEF and state own banks were used to play countercyclical.Lending by state own banks increased from 13.4% of GDP to
18.1% of GDP in 2009 and in 2011 it was 20.1% from 49.1% of all lending.
BNDES extended special credit facilities like credit was given at subsidize less than 6% which was 7.5% less than market price resource were channel from treasury bonds instead of WAT
BNDS credit distribution
Role of state banks in Brazil.
Before Crisis After Crisis
According to research Lending by BNDS is according to political view of public lending
Cont.…..
Mexican development banks expanded credit to private farms and non-bank financial institutions with the conditions to refinance the debt into declaration in their lending
Despite their strong lending expansion their relative share remand lower than 2006 level of private banks.
Mexican DBs were credited for restoring operation in key markets with CGS which was increase by 6.1 billion dollars
NPLs remand at 1.1% relative to 3% of private banks.So overall Mexican DBS played countercyclical role
during financial crisis.
Role of state banks in Mexico
Poland was the only country in which avoid recession due to timely safety measures
NBP and PKOPOLCKY expanded credits during financial crisis
PKOBP give credit it faster pace then foreign banks
PKO lending increase from 15.6% of GDP in 2008 to 17.2% in 2010
Four reasons of PKO credit expansion compared to foreign bank
Role of state banks in Poland
To create attractive business opportunities .PKO lending was supported by government .PKOs conservative structure reduced its
dependents on domestic and abroad financing .
Its adequacy ratio was more than 8% of regulatory ratio.
PKO played of sitting credit decline by foreign banks.
CONT…..
Two views about the role of government owned banksFranklin Allen professor in university of Pennsylvania
who give the first view about the role state own banks in promoting financial stability he was in the favor of direct government intervention which is also know development view this view is associated with according to him government banks can play important role in countries where economic institutions are not very developed where is capital scares and public distrust
They think that government is in a better position to control the aggregate credit and they can provide some special crisis management tools to overcome financial crisis
Long Run Impact of Government Bank Ownership
Charles calomiris professor at Colombia university give the second view about the role of state own banks which is also called Political view
argued that government do not have enough incentive to take socially desirable investment ,provide subsidize and employment they were thinking that it may create agencies problems and also the gov banks are not good trained in credit analysis like private banks they may also create corruption and misallocation of resources
Cont…..
Macroeconomic Evidence on the Impact of Government Bank on Credit and Output Cycle Caldern (2012) aggregate credit cycles are
deeper in financial system of countries with high participation of government state owned banks.
Credit contraction are twice as deep in country with GOBs as compare to low GOBs.
Credit recoveries in countries with high GOBs has faster and stronger rebound effect as compared low GOBs.
In countries with high GOBs the credit per capita fluctuates more in recoveries that follow crisis in recession.
Cont….
Canada, Chile, Malaysia, Netherland, Finland, France, Germany, Greece, UK, Japan and others introduced CGS to give access to finance for SMEs.
They refueled new credit and extended new schemes to remove the credit crunch on SMEs.
CGS serves as mechanism of diversification and transfer of risk.
Honohan (2010) CGS can emerge due to for three reason. To less asymmetric information To diversify and spread risk To exploit the regulatory arbitrage
Government Intervention in Credit Market beyond Bank ownership
CGS were used to achieve: Economic additionally Financial additionally
CGS is not real countercyclical tool they have unlikely more macroeconomic effects
Philippine: credit were given to those who really don’t needed it.
Pakistan: subsidize credit were given to exporters who really don’t needed fund.
Back: 49% of 70% CGS is funded by government and 20% is managed by government also 10% of risk assessment and recovery.
CGS is used in both developed and developing countries.
Cont…