Financial Institutions and Structures for Growth in East Asia

Singapore, development, institutions, finance

Banking Crises and Bank Rescues: The Effect of Reputation

This paper focuses on bank rescue packages and on the behaviour of troubled banks in light of rescue offers. A puzzling feature of experience with banking crises is that in many cases policy authorities make offers of bank rescue, and banks are reluctant to accept these offers. We study situations in which regulators have decided to offer bank rescue plans, and we show that a combination of factors, including bankers' reputational concerns, can explain banks' potential reluctance to accept offers of recapitalisation.http://deepblue.lib.umich.edu/bitstream/2027.42/39674/3/wp290.pd

Banking Crises and Bank Rescues: the Role of Reputation

This paper focuses on bank rescue packages and on banks' responses to rescue offers made during banking crises. A puzzling feature of experience with banking crises is that in many cases policy authorities make offers of bank rescue, but banks are reluctant to accept these offers. Asymmetric information between banks and outsiders regarding the extent of bad loans on banks' balance sheets is a common feature of banking crises. We study situations in which regulators have decided to offer rescue plans, and we show that banks' reputational concerns can have implications for the circumstances under which they will accept rescue offers. Even when the conditions accompanying a recapitalization plan are very "soft," banks may refuse to accept the offer. In order to compensate bankers for the negative reputational effects of accepting the plan, regulators may have to offer large amounts of recapitalization that are unrelated to the degree of the banks' solvency. In an optimal rescue plan the regulator will refrain from imposing punishment on banks that accept recapitalization; however, the regulator will impose costs on bankers who reject the rescue offer then perform poorly. Yet, even when the regulator takes account of bankers' reputational concerns in designing a rescue plan, rejection of the plan may occur in equilibrium. Strong bank supervisory systems aid the regulator who opts for bank rescues: when bank supervision is strong, banks will accept an offer of rescue with a lower amount of recapitalization than when bank supervision is weak. This suggests one explanation for international differences in experience with bank rescues.

A response to Hackethal and Schmidt (2003) "Financing patterns: measurement concepts and empirical results"

Hackethal and Schmidt (2003) criticize a large body of literature on the financing of corporate sectors in different countries that questions some of the distinctions conventionally drawn between financial systems. Their criticism is directed against the use of net flows of finance and they propose alternative measures based on gross flows which they claim re-establish conventional distinctions. This paper argues that their criticism is invalid and that their alternative measures are misleading. There are real issues raised by the use of aggregate data but they are not the ones discussed in Hackethal and Schmidt’s paper. JEL Classification: G3

What Drives Some Countries to Hoard Foreign Reserves?

Managing capital flows and liquidity demand has been a central issue for emerging-market countries. In an era of global imbalances, rapid accumulation of foreign exchange reserves by surplus countries is also an issue for the international system. In a well-functioning international financial system there would be no advantage to holding large reserves so this raises the question of whether surplus countries have a deliberate strategy of building reserves and why they would do this. This paper examines the motives for foreign reserve accumulation and analyzes the effects of financial development and capital flows on reserve accumulation in East Asian economies. We present a model in which a state holds reserves to supply foreign exchange liquidity in underdeveloped financial markets. Using annual data for 12 Asian economies between 1980 and 2009, our empirical results confirm the precautionary motives and financial stability motives in the region. We also find that financial development attenuates central banks’ motivation to hoard reserves by reducing the impacts of capital flows on foreign reserve demand. The policy implications are that improving financial market development within developing countries will reduce the incentive to build surpluses and accumulate reserves, while improving the international financial system to reduce volatility would also hel

What Drives Some Countries to Hoard Foreign Reserves?

Managing capital flows and liquidity demand has been a central issue for emerging-market countries. In an era of global imbalances, rapid accumulation of foreign exchange reserves by surplus countries is also an issue for the international system. In a well-functioning international financial system there would be no advantage to holding large reserves so this raises the question of whether surplus countries have a deliberate strategy of building reserves and why they would do this. This paper examines the motives for foreign reserve accumulation and analyzes the effects of financial development and capital flows on reserve accumulation in East Asian economies. We present a model in which a state holds reserves to supply foreign exchange liquidity in underdeveloped financial markets. Using annual data for 12 Asian economies between 1980 and 2009, our empirical results confirm the precautionary motives and financial stability motives in the region. We also find that financial development attenuates central banks’ motivation to hoard reserves by reducing the impacts of capital flows on foreign reserve demand. The policy implications are that improving financial market development within developing countries will reduce the incentive to build surpluses and accumulate reserves, while improving the international financial system to reduce volatility would also hel

Asia’s Economic Transformation: Implications for Australia

This policy brief details recent economic developments in four of Asia’s largest economies - Japan, India, China and Indonesia - and assesses the implications of these changes for Australia. Jenny Corbett looks at how economic frustrations led to political change in Japan and argues that, despite this year’s devastating earthquake and tsunami, there is opportunity for continued economic growth if the Japanese government, in conjunction with industry, pursues a program of smart rebuilding and does not become mired in prolonged political disagreement. Raghbendra Jha looks at how structural changes in the Indian economy, along with changes in Indian society, have increased the rate of growth in the world’s second largest country. He argues that while trade and investment relations between Australia and India are strong, there is substantial room for improvement. He highlights infrastructure and the services sector as potential expansion areas. Ligang Song sees continued benefits to Australia from China’s ongoing growth in the third part of this policy brief. This rapid growth, however, will bring macroeconomic, environmental, and social challenges in China that can only be overcome through major structural reforms. Finally, Ross McLeod examines the issues confronting Indonesia’s economy, including high inflation, corruption and wasteful energy use. He argues that while these present significant challenges, Indonesia’s economy is still performing strongly, being one of the few countries not to have suffered a severe decline in growth as a result of the Global Financial Crisis

Galaxies Correlating with Ultra-high Energy Cosmic Rays

The Pierre Auger Observatory reports that 20 of the 27 highest energy cosmic rays have arrival directions within 3.2 deg of a nearby galaxy in the Veron-Cetty & Veron Catalog of Quasars and Active Galactic Nuclei (12th Ed.), with ~5 of the correlations expected by chance. In this paper we examine the correlated galaxies to gain insight into the possible UHECR sources. We find that 14 of the 21 correlated VCV galaxies are AGNs and we determine their bolometric luminosities. The remaining 7 are primarily star-forming galaxies. The bolometric luminosities of the correlated AGNs are all greater than 5 x 10^{42} erg/s, which may explain the absence of UHECRs from the Virgo region in spite of the large number of VCV galaxies in Virgo, since most of the VCV galaxies in the Virgo region are low luminosity AGNs. Interestingly, the bolometric luminosities of most of the AGNs are significantly lower than required to satisfy the minimum condition for UHECR acceleration in a continuous jet. If a UHECR-AGN correlation is substantiated with further statistics, our results lend support to the recently proposed ``giant AGN flare" mechanism for UHECR acceleration.Comment: 13 pages, 3 figures, to be submitted to Ap

An action research protocol to strengthen system-wide inter-professional learning and practice

Background. Inter-professional learning (IPL) and inter-professional practice (IPP) are thought to be critical determinants of effective care, improved quality and safety and enhanced provider morale, yet few empirical studies have demonstrated this. Whole-of-system research is even less prevalent. We aim to provide a four year, multi-method, multi-collaborator action research program of IPL and IPP in defined, bounded health and education systems located in the Australian Capital Territory (ACT). The project is funded by the Australian Research Council under its industry Linkage Program. Methods/Design. The program of research will examine in four inter-related, prospective studies, progress with IPL and IPP across tertiary education providers, professional education, regulatory and registration bodies, the ACT health system's streams of care activities and teams, units and wards of the provider facilities of the ACT health system. One key focus will be on push-pull mechanisms, ie, how the education sector creates student-enabled IPP and the health sector demands IPL-oriented practitioners. The studies will examine four research aims and meet 20 research project objectives in a comprehensive evaluation of ongoing progress with IPL and IPP. Discussion. IPP and IPL are said to be cornerstones of health system reforms. We will measure progress across an entire health system and the clinical and professional education systems that feed into it. The value of multi-methods, partnership research and a bi-directional push-pull model of IPL and IPP will be tested. Widespread dissemination of results to practitioners, policymakers, managers and researchers will be a key project goal