Responding to the Global Financial and Economic Crisis: Meeting the Challenges in Asia

Based on a review of international and regional responses to the global financial and economic crisis and its implications for finance in Asia, Douglas Arner and Lotte Schou-Zibell draw lessons for Asian financial systems with regard to the scope of regulation; financial standards; supervision, regulation, and infrastructure; financial crises resolution; financial sector development; and strengthened regional financial architecture. They conclude with a discussion of challenges and policy options.Global financial crisis; Group of 20; systemic risk; financial sector development

Building subnational debt markets in developing and transition economies : a framework for analysis, policy reform, and assistance strategy

Subnational debt markets can be a powerful force in a country's development. Through delegated monitoring by financial intermediaries and through debt placed directly with investors, subnational debt markets account for about 5 percent of GDP in Argentina and Brazil. But they remain embryonic in most developing and transition economies. To resolve a potential clash between the increased financing needs of subnational entities and the limited development of domestic subnational debt markets, it is critical to support the orderly, efficient emergence of such debt markets. As a framework for policy reform, the following steps (mirroring typical weaknesses) are prerequisites for developing a country's subnational debt market: reducing moral hazard, improving market transparency, strengthening market governance, establishing a level playing field, and developing local capacity for accounting, budgeting, and financial management. In countries where the government shows a clear commitment to market development, says the author, the World Bank should support the framework needed for policy-based operations that establish hard budget constraints. In doing so, the Bank should concentrate on 1) supporting national and local capacity building in those areas essential for developing a subnational debt market; and 2) financing specific subnational projects with strictly nonrecourse loans. At the same time, the Bank should offer a variety of lending and guarantee instruments that encourage private financing for investments by subnational entities-including, for example, equity participation in (or lines of credit or partial credit guarantees to) financial intermediaries specializing in subnational investment finance or in funds for financing local infrastructure.Municipal Financial Management,Banks&Banking Reform,Payment Systems&Infrastructure,Public Sector Economics&Finance,Economic Theory&Research,Strategic Debt Management,Banks&Banking Reform,National Governance,Public Sector Economics&Finance,Economic Theory&Research

Role of the Bank for International Settlements in Shaping the World Financial System, The

The Bank for International Settlements ( BIS ) was set up in Basel, Switzerland in 1923 to handle remaining financial issues from World War II largely having to do with German reparation payments. It was the first of the semi-public international banks. Over the years its functions have changed and, largely since the late 1970\u27s, it has served as the situs for the world\u27s central banks and financial regulators to pool ideas and deal with international financial issues. A group of committees, com- posed largely of representatives of central bankers, now meets at BIS and has been issuing memoranda and drafts of regulations on a number of subjects affecting international banking. Among these are the regulation of capital, the management of international conglomerates, and problems resulting from electronic banking. Problems in world banking have sensitized observers to the absence of coordinated regulation and to the need for some form of unified control. That there is a need for one international bank regulators increasingly acknowledged. BIS comes closer than any other organization to fulfilling this function. The International Monetary Fund ( IMF ) comes close but is too politicized and has been too involved in attempting to meet a continuing series of crises to do any long range thinking. Only BIS has attracted the intellectual resources to analyze and resolve international problems in a thoughtful and deliberate manner. Only BIS output is being adopted in the world\u27s banking centers. BIS has been proposed as a world senior financial regulator. This article acknowledges the rationale for such a decision but argues that now is not the time for such an attempt. Banking is, of course, conducted locally even though its reach is international. To anoint any body as a senior regulator with the power to impose rules would require massive compromises among national regulators to achieve one central set of rules. It would also involve an abdication of measures of sovereignty by the constituent states. An effort of this kind would risk destroying the whole concept. Rather than start such a bold stroke at such an inopportune time, this Article argues that the international banking world would fare far better assisting BIS to proceed down the current track. As it continues to mature, and as its edicts are increasingly accepted throughout the world it will continue to approach its rightful place as the world\u27s bank regulator

DO GLOBAL STANDARDS AND CODES PREVENT FINANCIAL CRISES? SOME PROPOSALS ON MODIFYING THE STANDARDS-BASED APPROACH

After the crises in emerging market economies beginning with that of Mexico in the mid-1990s, the adoption of internationally recognized standards and codes (S&C) of financial best practices came to be seen as a way to strengthen the international financial system. The S&C initiative was launched as such in 1999 but included within its scope work on standards for the different subjects included which had often already been under way for some time. This paper evaluates the progress made so far and considers some of the basic assumptions of the S&C initiative. In particular it examines how far S&C can be instrumental in preventing financial crises, and focuses on issues raised by the initiative from a developing-country perspective. It devotes special attention to both the process of surveillance of S&C by the Bretton Woods institutions (BWI) and to the information which this process generates. In this context it appraises the use of this information by the private sector whose increased engagement with emerging markets is a major part of the rationale of the exercise.

Global Financial Regulatory Reforms:Implications for Developing Asia

The objective of global regulatory reform is to build a resilient global financial system that can withstand shocks and dampen, rather than amplify, their effects on the real economy. Lessons drawn from the recent crisis have led to specific reform proposals with concrete implementation plans at the international level. Yet, these proposals have raised concerns of relevance to Asia’s developing economies and hence require further attention at the regional level. We argue that global financial reform should allow for the enormous development challenges faced by developing countries—while ensuring that domestic financial regulatory systems keep abreast of global standards. This implies global reforms should be complemented and augmented by national and regional reforms, taking into account the very different characteristics of emerging economies’ financial systems from advanced economies. Key areas of development focus should be (i) balancing regulation and innovation, (ii) establishing national and cross-border crisis management and resolution mechanisms, (iii) preparing a comprehensive framework and contingency plan for financial institution failure, including consumer protection measures such as deposit insurance, (iv) supporting growth and development with particular attention to the region’s financial needs for infrastructure and for SMEs, and (v) reforming the international and regional financial architecture.financial regulatory reform; global financial architecture; G-20; Asia; national and regional reform

Banking Reform in Russia: Problems and Prospects

This paper examines the state of the Russian banking sector in 2004 and assesses the most important reform initiatives of the last two years, including deposit insurance legislation, a major reform of the framework for prudential supervision, steps to increase transparency in the sector, and measures to facilitate the development of specific banking activities. The overall conclusion that emerges from this analysis is that the Russian authorities’ approach to banking reform is to be commended. The design of the reform strategy reflects an awareness of the need for a ‘good fit’ between its major elements, and the main lines of the reform address some of the principal problems of the sector. The major lacuna in the Russian bank reform strategy concerns the future of state-owned banks. Despite a long-standing official commitment to reducing the role of the state – and of the Bank of Russia in particular – in the ownership of credit institutions, there is still a need for a much more clearly defined policy in this area. The real test of Russian banking reform efforts, however, will be in implementation. The reforms challenge numerous vested interests and their successful realisation will require considerable political will as well as the development of regulatory capacities of a very high order

The Eurozone Debt Crisis and the European Banking Union:A Cautionary Tale of Failure and Reform

The 2008 global financial crisis spread to most of the developed economies, including those of the European Union. Unfortunately, despite decades of effort to build a Single Financial Market, almost all EU jurisdictions lacked proper crisis resolution mechanisms, especially with respect to the cross-border dimensions of a global crisis. This led to a threat of widespread bank failures in EU countries and near collapse of their financial systems. Today, in the context of the Eurozone financial crisis, the EU is at a critical crossroads. It has to decide whether the road to recovery runs through closer integration of financial policies and of bank supervision and resolution, or whether to take the path of fragmentation with a gradual return to controlled forms of protectionism in the pursuit of narrow national interest, although the latter is bound to endanger the single market. Therefore, the policy dilemmas facing the EU and contemporary institution building within the Eurozone provide a key window into the future of both global and regional financial integration

Reforming tax systems - the World Bank record in the 1990s

The main constraint on world Bank operations in tax and customs administration is the Bank's inadequate institutional framework for accumulating knowledge from loan operations, concludes this review of the Bank's record on reform of tax systems in the 1990s. The Bank's theoretical basis for reforming tax and customs administration is still rudimentary. Recent theories stress the importance of institutions that harness voice and improve transparency and contestability, but there is little evidence that reform of these factors alone makes tax administration more effective. Improvements are needed in pre-project diagnosis and project design, especially for examining accountability, administration costs, managerial autonomy, performance incentives for staff, taxpayer equity and services, and environmental factors. Pre-project work could draw more systematically on lessons from previous experience. Institutional components of project design have been biased toward organization, manpower upgrading, and procedures related to information technology. Too little attention has been paid to improving accountability, administrative cost-effectiveness, and anticorruption institution-building. Projects have made inadequate use of different kinds of performance indicators, with little uniformity in those applied. Methods used to evaluate project outcomes could be better and more uniform. Suggestions for future Bank operations: 1) doing better background work and articulating a strategy and comprehensive framework for Bank involvement in reform of tax administration. 2) Possibly supporting and strengthening regional tax administration associations, which could serve as catalysts for change. 3) Strengthening partnering and supporting private sector consultant organizations, so they can manage major components of administrative reform. 4) Institutionalizing the accumulation of knowledge about tax administration (which might require changing staff recruitment, the mix of staff skills, and training plans). The authors provide recommendations for improving project diagnosis, design, performance indicators, and appraisal, as well as a short list of projects that serve as guides to good practice.Enterprise Development&Reform,Decentralization,Public Sector Economics&Finance,Banks&Banking Reform,Municipal Financial Management,Banks&Banking Reform,National Governance,Public Sector Economics&Finance,Municipal Financial Management,Tax Policy and Administration