Download Net Financial Interrelation Ratio

Debt and net financial wealth:
a comparative analysis for some
European countries
Giuseppe Cinquegrana
Researcher
National Accounts directorate
Istat
OECD Working Party - Paris, 30 November 2010
1
Model of Financial System
Bank oriented
vs.
Market oriented
Analysis on Financial Accounts
for some European countries
2
Model of Financial System
•
Bank oriented
Gershenkron, 1962
Universal banks have carried out a crucial role in the
economic development process in the nineteenth
century
(see Italy and Germany)
3
Model of Financial System
•
Bank oriented
Diamond, 1984, Mayer, 1988,
Levine, 1997, 2003,
Financial intermediaries have a fundamental role in
overcoming market failures due to the asymmetric
information. By monitoring and screening the firms’
projects during many years, banks are able to assess
and prevent opportunistic behaviours related to
adverse selection and to moral hazard problems.
4
Model of Financial System
•
Market oriented
new view Gurley and Shaw (1955)
Starting from the portfolio risk diversification theory,
they identify the crucial role of finance in the risk
selection and asset allocation on behalf of the
investors.
Also the degree of development and of the innovation
technology of the economy determines the model of
financial system.
5
Model of Financial System
•
Law finance approach
The relationship between finance and growth has to
be analyzed taking into account the different legal
traditions
• Common Law
Civil Law
6
Model of Financial System
Common law
•
historically oriented to a greater protection of
the holders of property rights towards the
government
•
public companies and widespread shareholding
•
governance conflicts: shareholder / manager
•
very liquid financial markets are, in effects, the
main protection for shareholders
Market Oriented Financial System
7
Model of Financial System
Civil Law
•
lower degree of protection of the private sector
•
firm ownership more concentrated
•
governance conflicts:
majority shareholder / minority shareholder
•
a bigger cost for the firms to obtain funding
directly on the financial market, because of the
high risk premium on the invested capital
demanded by minority shareholder
Bank Oriented Financial System
8
Goldsmith’s ratios
•
FIR: Financial Interrelation Ratio
measure of the degree of financial intensity of
an economic system
the financial assets of the whole economy
the wealth of the whole economy
9
Goldsmith’s ratios
•
FIN: Financial Intermediation Ratio
measure of the degree of financial
intermediation of an economic system
the liabilities of the Financial Corporations
the sum of the liabilities of all the other sectors
10
Other Financial indicators
•
CIR: Credit Intermediation Ratio
(Capelle-Blancard et al., 2006 )
measure of the degree of banking intermediation
on the whole financial intermediation in an
economic system
the loans granted by the Financial Corporations
the sum of the liabilities issued by all the other
sectors
11
Other Financial indicators
•
NFIR: Net Financial Interrelation Ratio
the net financial wealth
Gross Domestic Product at current prices
12
Analysis and data
•
Financial Accounts (ESA95)
European Monetary Union
United Kingdom
•
Source:
EUROSTAT, OECD,
OFFICE FOR NATIONAL STATISTICS UK
13
Institutional Sector ESA95
•
Total Economy S1
•
Non Financial Sector S11
•
Financial Sector S12
•
General Government S13
•
Household S14
•
Rest of the World S2
14
Financial Interrelation Ratio (%), FIR,
by European country
FIR ratio (financial assets S1 / GDP)
(Median EMU basis 100)
200
180
160
140
120
100
80
60
40
20
0
2000
2001
2002 2003 2004 2005 2006 2007
Italy France United Kingdom Spain Germany
2008
20002008
15
Financial Intermediation Ratio (%), FIN,
by European country
FIN ratio (liabilities S12 / liabilities S11+S13+S14+S2)
(Median EMU basis 100)
250
200
150
100
50
0
2000
2001
2002 2003 2004 2005 2006 2007
Italy France United Kingdom Spain Germany
2008
20002008
16
Credit Intermediation Ratio (%), CIR,
by European country
CIR ratio (loans S12 / liabilities S11+S13+S14+S2)
(Median EMU basis 100)
160
140
120
100
80
60
40
20
0
2000
2001
2002 2003 2004 2005 2006 2007
Italy France United Kingdom Spain Germany
2008
20002008
17
Net Financial Interrelation Ratio (%), NFIR,
Private Non Financial Sector (S11+S14) by European country
NFIR for the Private Non Financial Sector (net financial wealth S11+S14 / GDP)
(Median EMU basis 100)
600
500
400
300
200
100
0
-100
2000
2001
2002
2003
2004
2005
2006
-200
2007
2008
20002008
-300
-400
Italy France United Kingdom Spain Germany
18
Net Financial Interrelation Ratio (%), NFIR,
Household Sector (S14) by European country
NFIR for the Households (net financial wealth S14 / GDP)
200
175
150
125
100
75
50
25
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
20002008
Italy France United Kingdom Spain Germany
19
Financial liabilities on GDP (%) of the whole Non
Financial Sector (S11+S13+S14) by European country
Financial liabilities on GDP of the whole non fiancial sector (S11+S13+S14)
(Median EMU basis 100)
140
120
100
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
20002008
Italy France United Kingdom Spain Germany
20
Financial liabilities on GDP (%) of the Private Non
Financial Sector (S11+S14) by European country
Financial liabilities on GDP of the private non fiancial sector (S11+S14)
(Median EMU basis 100)
160
140
120
100
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
20002008
Italy France United Kingdom Spain Germany
21
Financial liabilities on financial assets (%)
Household Sector (S14) by European country
Financial liabilities on financial assests for Households sector
60
50
40
30
20
10
0
2000
2001
Italy
Spain
2002
2003
2004
France
Germany
2005
2006
2007
2008
United Kingdom
Median UEM 11
20002008
22
Thanks
OECD Working Party - Paris,
30 November 2010
23