Determinants of Financial Development across the Mediterranean. MEDPRO Technical Report No. 29/February 2013

Casual observation shows that that the financial systems in the southern and eastern Mediterranean are unable (or unwilling) to divert the financial resources that are available to them as funding opportunities to private enterprises. Using a sample of both northern and southern Mediterranean countries for the years 1985 to 2009, this study empirically assesses the reasons underlying such conditions. The results show that strong legal institutions, good democratic governance and adequate implementation of financial reforms can have a substantial positive impact on financial development only when they are present collectively. Moreover, inflation appears to undermine banking development, but less so when the capital account is open. Government debt growth appears to weaken credit growth, which confirms that public debt ‘crowds out’ private debt. Lastly, capital inflows appear to primarily have an income effect, increasing income and thereby national savings, and thus increasing the availability of credit

Benchmarking the Financial Sector in the Southern and Eastern Mediterranean Countries and Projecting 2030 Financial Sector Scenarios. MEDPRO Technical Report No. 31/March 2013

This paper aims at devising scenarios for the development of the financial system in the southern and eastern Mediterranean countries (SEMCs), for the 2030 horizon. The results of our simulations indicate that bank credit to the private sector, meta-efficiency and stock market turnover could reach at best 108%, 78% and 121%, respectively, if the SEMCs adopt the best practices in Europe. These scenarios are much higher than those of the present levels in the region but still lower than the best performers in Europe. More specifically, we find that improving the quality of institutions, increasing per capita GDP, opening further capital account and lowering inflation are needed to enable the financial system in the region to converge with those of Europe

Basel Compliance and Financial Stability: Evidence from Islamic Banks

We find that compliance with the Basel Core Principles (BCPs) has a strong positive effect on the stability of conventional banks, and a positive but less pronounced effect on the stability of Islamic banks. We also find that the main impact of compliance is an increase in capital ratios, whereas other components of the Z-score are negatively affected. This reflects the desire of banks to be more closely integrated into the global financial system by holding higher capital ratios. The findings also justify the 2015 decision of the Islamic Financial Services Board to publish similar principles for Islamic banks

Convergence of Bank Regulations on International Norms in the Southern Mediterranean: Impact on Bank Performance and Growth. CEPS Paperbacks. September 2011

International standards and norms in banking regulations have, once again, leapt to the forefront of policy discussions in developed nations due to the recent crisis in the world’s financial markets. These discussions are not new, nor do they apply exclusively to the world’s most advanced economies. A sound and well-enforced regulatory regime can help developing nations to channel financial resources more efficiently into investments. For open economies, it can also act as a buffer and an important stability factor in today’s shaky market situation. Against this background, this study examines the impact of banking sector regulations on bank efficiency and economic growth in four Southern Mediterranean countries – Algeria, Egypt, Morocco and Tunisia – while exploring the level of convergence of regulatory practices and efficiency to EU Mediterranean standards

The Impact of Capital and Foreign Exchange Flowson the Competitiveness of Developing Countries

Attracting capital and foreign exchange flows is crucial for developing countries. Yet, these flows could lead to real exchange rate appreciation and may thus have detrimental effects on competitiveness, jeopardizing exports and growth. This paper investigates this dilemma by comparing the impact of six types of capital and foreign exchange flows on real exchange rate behavior in a sample of 57 developing countries covering Africa, Europe, Asia, Latin America, and the Middle East. The results reveal that portfolio investments, foreign borrowing, aid, and income lead to real exchange rate appreciation, while remittances have disparate effects across regions. Foreign direct investments have no effect on the real exchange rate, contributing to resolve the above dilemma.Capital flows;Developing countries;Foreign exchange;Real effective exchange rates;Trade liberalization;Global competitiveness;Terms of trade;Productivity;reer, real exchange rate, exchange rate appreciation, real exchange rate appreciation, real exchange rates, exchange rate regimes, price of exports, export sector, exchange rate depreciation, nominal exchange rate, export orientation, oil exporting countries, oil exports, net exports, trade liberalisation, real exchange rate overvaluation, nominal exchange rate depreciation, open economy macroeconomics, fixed exchange rate regimes, exchange rate behavior, competitiveness of export, real exchange rate behavior, exchange rate interventions, exchange rate management, capital ? flows

The effects of bank regulations, competition, and financial reforms on banks' performance

In this paper, we examine the influence of bank regulation, concentration, and financial and institutional development on commercial bank margins and profitability across a broad selection of Middle East and North Africa (MENA) countries. The empirical results suggest that bank-specific characteristics, in particular bank capitalization and credit risk, have a positive and significant impact on banks' net interest margin, cost efficiency, and profitability. Also we find that macroeconomic and financial development indicators have no significant impact on net interest margins, except for inflation. Regulatory and institutional variables seem to have an impact on bank performance.Bank interest margin Bank profitability Dynamic panel data and MENA region

The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia

The Capital Asset Pricing Model (CAPM) has dominated finance theory for over 30 years; it suggests that the market beta alone is sufficient to explain security returns. However, evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Alternative studies have been proposed in response to the poor performance of the standard CAPM. The main contribution of this paper is to offer to investors planning to invest the appropriate model for estimating the cost of equity in the Tunisian market. The paper allows choosing among the CAPM, the Fama&French asset-pricing model (TPFM), and the Four Factor Pricing Model (FFPM), which adds a third and fourth moment to estimate the cost of equity of firms listed on the Tunisian stock market. In addition to the classic, the selection of the best model is based on information criteria: the Akaike Information Criteria (AIC) and the Schwartz Information Criteria (SIC). The simple FFPM of Cahart proved to be the selected model.

Taming financial development to reduce crises

This paper assesses whether and how financial development triggers the occurrence of banking crises. It builds on a database that includes financial development as well as financial access, depth and efficiency for almost 100 countries. Through estimation of a dynamic logit panel model, it appears that financial development, from an institutional dimension and to a lesser extent from a market dimension, triggers financial stability within a 1- to 2-year horizon. Additionally, whereas financial access is destabilizing for advanced countries, it is stabilizing for emerging and low incomes ones. Both results have important implications for macroprudential policies and financial regulations

Financial development and employment: New panel evidence

This paper adds to the recent literature on finance and employment creation by exploring the effect of finance on the labour market, using data on 143 countries from 1995 to 2015. We also examine whether the impact of financial development on labour is significantly different before and after the 2008 global financial crisis. This paper has five main findings. First, the analysis confirms the positive relationship between financial institution efficiency and access, as well as the employment rate in the linear specification. Second, the marginal returns to employment from further financial institution inclusion diminish at high levels of inclusion and turn negative when an inclusion point is reached. Third, the effects of financial market access on employment show a "U-Shaped" relationship. Fourth, the positive effect of financial development on employment strengthens with the country's institutional quality. And fifth, there is strong support for a negative impact of financial development on employment during the global financial crisis of 2007-2008. 2021 Banca Monte dei Paschi di Siena SpAWe would like to thank the associate editor and two anonymous referees for their useful comments, and Rob Atree for editorial assistance.Scopu