The 1985-94 global real estate cycle : its casues and consequences

The peak of the first global real estate boom was reached around 1990 in most Organization for Economic Cooperation and Development (OECD) countries. Asset inflation was massive: in office markets across Europe, capital values rose 400 percent between 1980 and 1990, accelerating after 1986 - while average consumer price inflation went up only 150 percent. Property values have declined sharply since 1990, with most property markets losing at least 20 percent in nominal terms the first year of the crash's onset. Cumulative drops in capital value often reached 50 percent by the end of 1993. This pattern of a sustained buildup, usually peaking in 1990, followed by a sharp fall in nominal values, has been encountered in most OECD markets and in several NIE countries. Real estate booms and busts are recurring events, says the author, but real estate volatility on the scale and with the intensity just experience is costly and destructive. Real resources are misallocated, and the impact on the banking system, on households, and on the economy can be lasting. The author surveys the global real estate cycle of 1985-94, trying to identify domestic and international factors that triggered this new phenomenon of global real estate volatility. The authors intent: Assuming that the globalization of financial markets is irreversible, can we separate unique factors from recurring ones in this first global cycle? Can we map generic policy lessons and identify policy priorities and research agendas? Can we identify factors that accentuate real estate price and investment volatility? Four domestic factors lay behind the unusual volatility of this first global cycle, says the author: the liberalization and deregulation of capital markets, a distorted incentive structure that often stimulated the use of debt, new macroeconomic tools and occasional policy errors, and the structure of the real estate sector itself. The wide-ranging survey includes a proposal for research in certain areas, and offers some diagnosis. For example: If the global real estate crash has publicized one thing, it is the poor quality of information on real estate markets.Banks&Banking Reform,Payment Systems&Infrastructure,Financial Intermediation,Environmental Economics&Policies,International Terrorism&Counterterrorism,Financial Intermediation,Environmental Economics&Policies,Housing Finance,Economic Theory&Research,Banks&Banking Reform

The impact of regulation on financial intermediation

This paper classifies financial regulations by their primary objective into six types: macroeconomic, allocative, structural, prudential, organizational, and protective. The author notes that the most regulations have effects that cut across different objectives and that structural controls are the most controversial types of financial regulation. The author maintains that many of the problems facing the United States financial system, such as the fragmented and fragile banking system, the financial crisis of the thrift industry, and the segmented banking and nonbanking parts of the financial system, can be attributed to the adverse effects of structural regulation. Finally, he argues that the most important task facing policymakers is creating a sound and robust financial constitution that governs what financial institutions are permitted to do and what basic conditions they have to meet. But, he adds that the financial constitution needs to be as far as possible neutral between different types of financial intermediaries and markets. Such a framework would contribute to higher efficiency and stability in the first place and would thus avoid the cost of later interventions.Financial Intermediation,Banks&Banking Reform,Environmental Economics&Policies,Insurance&Risk Mitigation,Insurance Law

How the 1992 legislation will affect European financial services

European Economic Community

Deregulating Network Industries: Dealing with Price-Quality Tradeoffs

This paper examines the e®ects of introducing competition into monopolized network industries on prices and infrastructure quality. Analyzing a model with reduced-form demand, we ¯rst show that deregulating an integrated monopoly cannot simultaneously decrease the retail price and increase infrastructure quality. Second, we derive conditions under which reducing both retail price and infrastructure quality relative to the integrated monopoly outcome increases welfare. Third, we argue that restructuring and setting very low access charges may yield welfare losses, as infrastructure investment is undermined. We provide an extensive analysis of the linear demand model and discuss policy implications.infrastructure quality, deregulation, investment incentives, access charges, regulation

Effects of Liberalization and Deregulation in the German Insurance Market: Essays on Distribution Channel Structures, Efficiency and Market Performance

This collection of articles contributes to knowledge of the German insurance industry after its liberalization by analyzing changes in the structure and choice of distribution channels in private insurance markets in the first and second article. In a third article the development of market performance is analyzed for the German life insurance industry. The major findings show that the liberalization and the ensuing deregulation in the German insurance markets have led to major changes in the structure and choice of distribution channels. The analysis of market performance reveals that the expected benefits have been only partially achieved in the German life insurance industry.Diese Aufsatzsammlung analysiert Liberalisierungs- und Deregulierungseffekte auf dem deutschen Versicherungsmarkt. Im ersten und zweiten Aufsatz werden Veränderungen in der Struktur und Auswahl von Vertriebskanälen untersucht. Der dritte Aufsatz analysiert die Entwicklung des Marktergebnisses auf dem deutschen Lebensversicherungsmarkt. Die zentralen Ergebnisse zeigen, dass die Liberalisierung und anschließende Deregulierung der deutschen Versicherungsmärkte zu großen Veränderungen in der Struktur und Auswahl der Vertriebskanäle geführt haben. Die Analyse des Marktergebnisses ergibt, dass die angestrebten Folgen der Liberalisierung nur teilweise erreicht worden sind

Bank competition and financial stability : friends or foes ?

Theory makes ambiguous predictions about the relationship between market structure and competitiveness of the banking system and banking sector stability. Empirical studies focusing on individual countries provide similarly ambiguous results, while cross-country studies point mostly to a positive relationship between competition and stability in the banking system. Where liberalization and unfettered competition have resulted in fragility, this has been mostly the consequence of regulatory and supervisory failures. The advantages of competition for an efficient and inclusive financial system are strong, and regulatory and supervisory policies should focus on an incentive-compatible environment for banking rather than try to fine-tune market structure or the degree of competition.Banks&Banking Reform,Access to Finance,Emerging Markets,Debt Markets,Labor Policies

Financial market integration under EMU

The single most important policy-induced innovation in the international financial system since the collapse of the Bretton-Woods regime is the institution of the European Monetary Union. This paper provides an account of how the process of financial integration has promoted financial development in the euro area. It starts by defining financial integration and how to measure it, analyzes the barriers that can prevent it and the effects of their removal on financial markets, and assesses whether the euro area has actually become more integrated. It then explores to which extent these changes in financial markets have influenced the performance of the euro-area economy, that is, its growth and investment, as well as its ability to adjust to shocks and to allow risk-sharing. The paper concludes analyzing further steps that are required to consolidate financial integration and enhance the future stability of financial markets

Network Utilities in the U.S. - Sector Reforms without Privatization

U.S. network industry reforms led other countries in the past, but have recently run into difficulties in specific areas. In particular, the U.S. telecommunications sector was hit by a deep crisis and electricity reforms suffered under the California disaster. Part of the explanation for these difficulties stems from past successful liberalization and deregulation experiences in other areas suggesting that competition could provide large benefits to hitherto regulated utilities in local telephony and the electricity sector. Part of the explanation lies in an underestimate of the coordination problems, resulting in bad institutional design, and in the difficulty to deal with vested consumer interests.network industries, regulation, competition, telecoms, electricity