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Transcript of Transforming finance conference May 10, 2013, London Professor Stephany Griffith-Jones Financial...
![Page 1: Transforming finance conference May 10, 2013, London Professor Stephany Griffith-Jones Financial Markets Program Director at the Initiative for Policy.](https://reader035.fdocuments.us/reader035/viewer/2022081821/551ba32e55034675548b473d/html5/thumbnails/1.jpg)
Transforming finance conference
May 10, 2013, London
Professor Stephany Griffith-JonesFinancial Markets Program Director at
the Initiative for Policy [email protected]
www.stephanygj.netwww.policydialogue.org
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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 properlyDo we need very different financial system?-Restricting or isolating speculation -Financial system serves real economy
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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
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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)
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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 macro-
prudential regulation; now accepted by IMF
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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
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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
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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
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European pro growth policies
•Pan European measures•Countries without market
access•Countries with market
access; the UK case
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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
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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 25
Additional EIB lending total 20 45 35
-- Risk buffers 10 10 10
-- Capital increase 10 35 25
Grand Total 35 60 60 25
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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 imply16% more of GDP according to modelling
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Table 3: GDP in £ billion, 2010 prices under two scenarios
•