Download Banking Regulation and Central Banks

Who Supervises Whom? Who Pays What?
Boštjan Jazbec
Bank of Slovenia
Dubrovnik, June 29, 2007
The views expressed herein are not necessarily those of the Bank of Slovenia.
Evan, thank you.
What is Financial Stability?
Many definitions (talk to David, Gerard, Lars,...).
To have a good time while it lasts.
Cost of Financial Instability
Stability crises
Direct costs in % of GDP
Turkey (since 2000)
30%
Japan (since 1991)
24%
Spain (1977-1985)
17%
Slovenia (1992)
16%
Bulgaria (1996)
15%
Finland (1991-94)
11%
Sweden (1991)
6%
USA (1984-91)
3%
Source: Wuerz (2005), Honohan
and Klingebiel (2000)
Is there any problem with
rapid credit growth in CEECs?
Growth Performance
Real Growth of Regional GDP per capita
East Asia
Latin America
Other EMs
-2
0
2
4
6
8
10
CEECs
2001
2004
2007
2001
2004
2007
2001
2004
2007
Source: Schadler (2006)
2001
2004
2007
Balance of Payments
Average Current Account Balance
unweighted average; in percent of GDP; 1998-2007
East Asia
Latin America
Other EMs
-5
0
5
-5
0
5
CEECs
1998
2001
2004
2007
1998
2001
Source: Schadler (2006)
2004
2007
Mostly Private Debt
Net Capital Flows to Emerging Markets, 1991-2004
In percent of GDP
Portfolio Equity
Private Debt
Public Debt
FDI
East Asia
Latin America
Other EMs
-2
0
2
4
6
-2
0
2
4
6
CEECs
1991
1994
1997
2000
2003
1991
1994
Source: World Bank, Global Development Finance Database.
Source: Schadler (2006)
1997
2000
2003
Bank Credit Domination
EMs: Real Growth of Bank Credit to Private Sector
(2005; In percent)
Philippines
Egypt
Thailand
Korea, Republic of
Pakistan
Malaysia
China
POLAND
Indonesia
Israel
Morocco
Mexico
Chile
South Africa
Peru
HUNGARY
Colombia
CZECH REPUBLIC
SLOVENIA
Russia
Argentina
India
Brazil
SLOVAK REPUBLIC
ROMANIA
Jordan
BULGARIA
Turkey
Venezuela
LITHUANIA
LATVIA
ESTONIA
-20
0
20
Source: Schadler (2006)
40
60
Challenges for Financial Stability?
EMs: Nonperforming Loans
Household Financial Leverage
(In percent)
(2005; In Percent of Total Loans)
25
25.0
35
Hungary
30
20
20.0
25
15
15.615.7
Poland
20
13.6
10
15
5
7.7
5.2
4.7 4.9
8.9
10.3
10
5.8
5
2000
Egypt
Morocco
Philippines
Indonesia
Israel
Jordan
China
Thailand
Pakistan
ROMANIA
POLAND
India
Malaysia
Argentina
SLOVENIA
Brazil
CZECH REPUBLIC
Turkey
Russia
Colombia
LITHUANIA
Peru
BULGARIA
HUNGARY
Mexico
SLOVAK REPUBLIC
Venezuela
South Africa
Chile
Korea, Republic of
LATVIA
ESTONIA
Czech Republic
Turkey
0
0
0.2
2.9 3.0
2.2 2.5
1.7 2.0 2.1 2.1
1.2 1.3 1.4
0.7 0.9
3.9 4.1 4.1
8.3 8.3
9.8
2001
2002
2003
2004
Sources: GFSR September 2006
Note: Household leverage is defined as the ratio of household liabilities to
household assets.
Note: Data may not be fully comparable across countries due to regulatory differences
Source: Schadler (2006)
2005
Reasons for Banking Regulation
• Role in allocation of ressources
• Prevention of systemic risks
• Externalities
• Market failure/Asymetric Information
• Moral Hazard
• Lemon Problem
• Regulatory Arbitrage
• Reduction of potential „insurance“ obligation of the state
Source: Mayes (2005)
Banking Regulation and Central Banks
Member State
Supervisory model
Central bank involvement
Austria
integrated supervisor
yes
Belgium
integrated supervisor
yes
Denmark
central bank
no
Germany
integrated supervisor
yes
Greece
central bank
yes
Spain
central bank
yes
France
banking supervisor
yes
Ireland
integrated supervisor
yes
Italy
central bank
yes
Luxembourg
banking supervisor
no
Netherlands
central bank
yes
Portugal
central bank
yes
Finland
banking supervisor
yes
Sweden
integrated supervisor
yes
United Kingdom
integrated supervisor
yes
Member State
Supervisory model
Central bank involvement
Cyprus
central bank
yes
Czech Republic
central bank
yes
Estonia
integrated supervisor
yes
Hungary
integrated supervisor
yes
Lithuania
central bank
yes
Latvia
integrated supervisor
yes
Malta
integrated supervisor
no
Poland
banking supervisor
yes
Slovakia
central bank
yes
Slovenia
central bank
yes
Source: Wuerz (2005)
Home vs. Host
Host country problem – bank is of systemic
importance, when it is not so in the home
country
Home country problem – is there any?
Supervision
The main debate is over the role of home
country as lead consolidating supervisor.
Should that be so?
Europe not yet ready for a ‘federal level’
player.
Home:Host = 1:0
Deposit Insurance Scheme
Those who supervise should also bear costs of
deposit insurance scheme.
'We should all be on the same boat to Split'.
Conclusions
Home country control
Deposit insurance
European agency