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1
Financial Development in LACThe Road Ahead
2011 Regional Flagship Launch
Central Bank of BrazilMarch 22, 2012
Chief Economist OfficeLatin America and the CaribbeanThe World Bank
Structure of the Report
Financial development Frictions, failures, paradigms Bright and dark sides Patterns and paths
Where does LAC stand? Domestic FD Financial globalization Financial inclusion
Developmental issues The banking gap The equity gap Going long Risk absorption by the state
Prudential oversight Where is LAC? The new agenda
• Macro-prudential policy• Micro-systemic regulation• Systemic supervision
Introduction
Where does LAC stand with respect to financial development? Financial deepening, irrespective of financial stability
How is financial development related to financial globalization? Use of international markets (offshorization)
Basic trends here Latin America centered, with lessons and evidence on other EMs
Given time constraints, some scattered evidence presented
The report has many more details for the interested readers
Policy discussion
Bird’s-eye view, showing stock-taking exercise Broad and systematic comparisons across selected countries and regions Mostly over the past two decades
Several comparisons shed new light to different observers Problem of benchmarking
Before/after analysis? Developed countries? Which ones? US? Germany? Others non-core? Which regions and countries among developing ones? Which controls?
Introduction
Focus on domestic financial development Compare to globalization process
Essential given large extent of globalization And nature of financial intermediation in integrated markets
Focus on banks and capital markets (bond and equity markets) Main focus on firms, but shed light on borrowers and creditors Different indicators
Standard (e.g., over GDP) and relative sizes of different markets With and without controls Indicators capturing the changing nature of financing Illustrate issues like currency and maturity composition, liquidity,
concentration, firms’ access to finance
Introduction
Mixed, nuanced picture from all the data: no linear story Financial systems developed over the last two decades Also became significantly more complex From a mostly bank-based model to a more complete and
interconnected model Non-bank markets (bonds and equities) increased in absolute and
relative size New markets also developing Non-bank institutional investors now play more central role The number and sophistication of participants (including cross-border
investors) increasing Banks connected to capital markets and institutional investors
Summary of Findings
Nature of financing also changing, slowly In general, towards the better
Increased maturity of bonds (both private and public sectors in domestic and foreign markets)
Decline in the extent of dollarization of loans and bonds Even some issues of local currency bonds in foreign markets
Local developments paired by two-way internationalization Big chunk of globalization/offshorization happened in the 1990s But now, safer integration
EMs net creditors in debt and net debtors in equity
Different stories for bond and equity markets Bonds domestically and equity abroad
Summary of Findings
Despite all new developments, large heterogeneity across regions and countries No convergence yet – advanced economies developed even more Though different stories across regions, some general trends Many of the improvements centered in certain areas, and countries
Many shortcomings in several important EMs Bank credit stagnated in various countries Firm financing from banks decreased in relative terms Bond markets expanded, but with limitations In banks and bonds, public sector still captures significant share Equity markets still small, illiquid, and concentrated in large firms Institutional investors sophisticated and large in several countries, but
with much more limited role than previously thought
Summary of Findings
Far away from model of dispersed ownership and participation
Supply versus demand effects Constraints not on lack of available funds: domestic & foreign savers
Many assets available for investment not purchased by institutional investors or foreigners, which hold large resources
Institutional investors seem to shy away from risk
Incentives to banks to move first into relatively easy markets (consumer, leasing, services), after big corporations left to capital markets
Incentives to asset managers and the overall functioning of financial systems does not contribute to expectations
Implications of Findings
Many firms not becoming public or not accessing markets Capital markets service only few firms, with increasing concentration
domestically and abroad Substantial financing through retained earnings and banks
Regulations do not seem to be the main obstacle Several challenges ahead
Growing savings Role of financial intermediaries Need for more risk taking paired with stability Spillovers to all firms Need to catch up Complexities and interconnectedness
Implications of Findings
Structure of the Financial System
Size of Domestic Financial System
Relative Size: All Increased, But No Catch Up
Source: IFS, BIS, and WDI
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
Asia (5) China Eastern Europe (2)
G7 (5) India LAC7 (6) Oth. Adv. Economies
(4)
Brazil
0%
50%
100%
150%
200%
250%
300%
350%
83% 84% 95%128%
51% 50%
97%123%
36%60%
39% 44%80%
105%
59% 73%
36%56%
8%
36%
17%43%
92%
104%
20%
35%
20%33%
52%
59%
43%
60%
77%66%
13%
66%
13%
31%
69%
89%
32%
62%
28%
42%
54%
85%
22%
51%
Banks Bonds Equities%
of G
DP
LAC7
Markets Outstanding Liabilities
Assets Held
Markets Outstanding Liabilities
Assets Held
2000-2003 2004-2007
0%
20%
40%
60%
80%
100%
120%
140%
Banks45% Govt
35%PF
14%
Banks41% Govt
36% PF19%
Bonds31%
Corp.65%
MF 7%
Bonds34%
Corp.77%
MF 9%
Equity34%
Househ.10%
IC 4%
Equity49%
Househ.10%
IC 5%
Banks45%
Banks41%
Frgn.57%
Frgn.48%
% o
f GDP
Structure of Domestic Financial Systems
Source: Lane and Milesi-Ferretti (2007), IFS, BIS, WDI, EMBD, ICI, ASSAL, AIOS, and local sources
Banks
Private Bank Claims
Banks: Uneven Evolution
Numbers in parentheses next to region names represent the number of countries included in the graphs. Source: IMF’s IFS
Asia (5) China Eastern Europe (3)
G7 (5) India LAC7 (6) Oth. Adv. Economies
(6)
Brazil0%
20%
40%
60%
80%
100%
120%
140%
44%
73%
31%
65%
24%29%
58%55%
76%
93%
23%
82%
24%29%
72%
56%
71%
117%
34%
107%
40%
30%
100%
38%
1980-1989 1990-1999 2000-2009
% o
f GD
P
Credit Composition
Banks: Relative Decline in Corporate Lending
Source: Local sources
2000
-03
2004
-07
2008
-09
2000
-03
2004
-07
2008
-09
2000
-03
2004
-07
2008
-09
2000
-03
2004
-07
2008
-09
2000
-03
2004
-07
2008
-09
2000
-03
2004
-07
2008
-09
China Eastern Europe (2)
G7 (2) LAC7 (6) Oth. Adv. Economies (3)
Brazil
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
40%31%
25%
49%41%
34%
45% 42% 43%
66%62% 60%
48% 48% 50%
67% 63% 61%
37%51%
58%
34%40%
49%
43% 47% 47%
19%
14%14%
43% 43% 42% 10%
5% 6%
22% 19% 17% 17% 18% 18%11% 10% 10%
14%24% 26%
9% 9% 8%
23%32% 33%
Commercial Mortgage Personal
% o
f Tot
al C
red
it
Banks: Not Closing the Gap
Note: Controls used are GDP per capita, population size and density, young and old age dependency ratios, a financial offshore center dummy, a transition country dummy, and a large fuel exporter dummy.
-40
-30
-20
-10
0
10
20
30
40
5019
84
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Asia Eastern Europe G7 LAC-7 Other Advanced Economies
Private Credit over GDP (Residuals)
53%
17%
15%
15%
Banks Retailers Family Comp. Funds and Cooperatives Others
Consumer Debt in Chile
Retail Stores: Hold Significant Fraction of Debt
Source: Matus et al. (2010)
Access: But Considerably More Expensive
Median Checking and Savings Accounts Annual Fees (% of GDP per capita)
LAC7 Asia China India Eastern Europe
G7 Oth. Adv. Economies
Brazil0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.4%
0.7%
0.0% 0.0%
0.2% 0.2%
0.1%
0.8%
0.5%
0.3%
0.0%
0.2%
0.0% 0.0% 0.0% 0.0%
Annual fees checking account Annual fees savings account
% o
f GD
P
Bond Markets
Composition of Bond Markets, % of GDP
Bond Markets Have Expanded, But Public Sector Still Large and Growing
Source: BIS
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
1990
-9
2000
-9
Asia (5) China Eastern Europe (2)
G7 (7) India LAC7 (7) Oth. Adv. Economies
(5)
Brazil
0%
20%
40%
60%
80%
100%
120%
16%24%
4%13%
2% 4%
41%48%
1% 2% 5% 10%
30%40%
11% 15%
20%
32%
4%
23%
14%
40%
52%
65%
19%
33%15%
23%
31%24%
33%
45%
Private Bonds Public Bonds%
of G
DP
Bond Value Trading as % of Total Bond Market Capitalization
Bond Market Turnover Not on the Rise
Note: Trading data includes domestic private, domestic public and foreign bonds traded in local stock exchanges. Source: World Federation of Exchanges (WFE)
Asia (3) China Eastern Europe (3)
G7 (4) India LAC7 (4) Oth. Adv. Economies
(4)
Brazil0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
18%
178%
80%
39%
110%
21%
59%
10%
24%
35%
84%
39%31%
12%
57%
3%
30%23%
56% 58%
15% 12%
80%
1%
2000-2003 2004-2007 2008-2009
% T
otal
Bon
d M
ark
et C
apit
aliz
atio
n
Amount of New Issues
Private Bond Issuance is Small …
Source: SDC
Asia (5) G7 (7) LAC7 (7) Oth. Adv. Economies (7)
Brazil0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1.2%
3.4%
0.8%
1.1%
0.8%
1.6%
4.7%
1.1%
1.7%
1.3%
1991-1999 2000-2008%
of G
DP
Total Amount of New Issues per Year as % of GDP
… Except in Chile
Source: SDC
1.1% 1.0%
3.1%
0.5%
1.2%
1.6%
0.0%
1.6%
3.5%
0.0%
0.9%
0.1%0.1%
1.5%
4.3%
0.6%
1.3%
0.7%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Argentina Brazil Chile Colombia Mexico Peru
% o
f GD
P
2000-2003 2004-2007 2008
Average Number of Firms Issuing Bonds
Private Bonds: Few (and Fewer) Firms Use Markets
Source: SDC
Asia (5) G7 (7) LAC7 (7) Oth. Adv. Economies (7)
Brazil0
50
100
150
200
250
300
350
400
450
500
9
369
30 20
69
21
462
19 2441
1990-1999 2000-2008
Nu
mb
er o
f Fir
ms
Concentration in Private Bond MarketsAmount Raised by Top 5 Issues
Private Bonds: Few Issues Capture Significant Share
Note: Concentration is defined as the top-5 issues as a percentage of the total amount raised by firms in domestic bond markets. Numbers in the base of the bars represent the average number of yearly issues. Source: SDC
Asia (5) G7 (7) LAC7 (6) Oth. Adv. Economies (6)
Brazil0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
60%
20%
54%59%
39%
55%
27%
43%
69%
41%
9 369 30 20 6921 462 19 24 41
1991-1999 2000-2008
% o
f Tot
al A
mou
nt
Rai
sed
Equity Markets
Equity Market Capitalization
Source: SDC
Market Capitalization as % of GDP
Asia (5) China Eastern Europe (2)
G7 (7) India LAC7 (7) Other Advanced Economies (7)
Brazil0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
77%
13% 13%
69%
32%28%
54%
22%
66% 66%
31%
89%
62%
42%
85%
51%
1990-1999 2000-2009
Trading Activity – Turnover Ratio
Equity Trading: A Different Picture than Mkt. Cap.
Note: Turnover ratio is defined as the total value traded per year in domestic markets over total market capitalization. Source: SDC
Asia (5) China Eastern Europe (7)
G7 (7) LAC7 (7) Oth. Adv.Economies
(7)
Brazil0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
73%
189%
47%
75%
25%
62%
50%
85%
124%
61%
128%
17%
102%
46%
1990-1999 2000-2009
Tu
rnov
er R
atio
Value Traded Abroad to Total Value Traded
Partly Explained by Trading Abroad
Source: Bank of New York and Bloomberg
Asia (1) China Eastern Europe (1)
G7 (5) India LAC7 (4) Oth. Adv. Economies
(5)
Brazil0%
10%
20%
30%
40%
50%
60%
70%
11% 12%8%
4%
12%
54%
19%
43%
13%12%
3% 3%
23%
58%
15%
55%
10%13%
5% 5%
27%
61%
16%
62%
2000-2003 2004-2007 2008-2009
% o
f Tot
al V
alue
Tra
ded
Partly Explained by Migration Abroad
Source: Bloomberg
Domestic and International Value Traded over Domestic Market CapitalizationFor Firms with DR Programs
00-05 06-10 00-05 06-10 00-05 06-10 00-05 06-10 00-05 06-10 00-05 06-10 00-05 06-10 00-05 06-10Asia China Eastern
EuropeG7 India LAC7 Oth. Adv.
EconomiesBrazil
0
0.5
1
1.5
2
2.5
1.0 1.1
1.4 1.5
1.10.9
1.1
1.6 1.5
2.1
0.4 0.4
0.8
1.2
0.50.8
0.00.0
0.00.1
0.0
0.0
0.0
0.00.0
0.1
0.20.3
0.1
0.1
0.3
0.4
Domestic Turnover International Turnover
Tu
rnov
er R
atio
Domestic Value Traded in Securities of Domestic and International Firms
Domestic Firms Gaining Space in Brazil
Source: Bloomberg and EMDB
22% 21% 20% 24% 26% 31% 32% 37%
78% 79% 80% 76% 74% 69% 68% 63%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007
Shar
e of
Tot
al D
omes
tic
Val
ue T
rade
d
Domestic Firms International Firms
Concentration in Domestic Equity MarketsShare of Value Traded by Top 5 Companies
Source: EMDB
… And Trading is Becoming Less Concentrated
Asia (5) China Eastern Europe (5)
India LAC7 (6) Brazil0%
10%
20%
30%
40%
50%
60%
70%
80%
36%
21%
63%
58%60%
74%
39%
20%
73%
39%
57%
40%
1990-1999 2000-2009
% o
f Tot
al V
alu
e T
rad
ed
Equity Markets – Issuance Activity
Breadth of Equity Markets: Issuance Activity Small (and Declining) in LAC
Source: SDC
Asia (5) China Eastern Europe (7)
G7 (7) India LAC7 (6) Oth. Adv. Economies
Brazil0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
1.6%
0.8%
0.2%
0.9%
0.3%
0.7%
1.0%
0.3%
1.4%
0.7%
0.3%
1.1%
0.7%
0.2%
1.4%
0.6%
1991-1999 2000-2008
% o
f GDP
Number of Listed Firms
Equity Markets: Few Firms List
Source: WDI
Asia (5) China Eastern Europe (7)
G7 (7) India LAC7 (7) Oth. Adv. Economies
(7)
Brazil0
1,000
2,000
3,000
4,000
5,000
6,000
425 441 225
2,072
4,441
224 385
545 715
1,382
167
2,322
5,207
175
828
403
1990-1999 2000-2009
Nu
mb
er o
f Lis
ted
Fir
ms
Average Number of Firms Raising Capital
Equity Markets: Even Fewer Firms Raise Capital
Source: SDC
Asia (5) China Eastern Europe (7)
G7 (7) India LAC7 (6) Oth. Adv.Economies
(7)
Brazil0
100
200
300
400
500
600
38
101
2
258
531
18
58
22
86 91
5
296
86
5
118
19
1991-1999 2000-2008N
um
ber
of L
iste
d F
irm
s
Note: Numbers in the base of the bars represent the average numbers of yearly issues. Source: SDC
Equity Markets: Also with Significant Concentration
Concentration in Domestic Equity MarketsShare of Amount Raised by Top 5 Issues
Asia (5) China Eastern Europe (7)
G7 (7) India LAC7 (6) Oth. Adv. Economies
(7)
Brazil0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
61%
29%
92%
50%45%
77%
68%
78%
62%
47%
85%
39%
54%
85%
63%67%
43 103 4 315 532 22 92 128 97 8 381 109 8 208
1991-1999 2000-2008 Series3 Series4
% o
f Tot
al A
mou
nt
Rai
sed
Institutional Investors
Pension Fund Assets
Pension Funds Gaining Ground
Source: AIOS
Asia (4) China Eastern Europe (7)
G7 (7) India LAC7 (7) Oth. Adv. Economies
(6)
Brazil0%
5%
10%
15%
20%
25%
30%
35%
40%
16%
0%2%
30%
5%
15%
26%
12%
15%
0%
5%
34%
6%
19%
33%
16%
2000-2004 2005-2009
% o
f GD
P
Mutual Fund Assets
Mutual Funds Growing Too
Source: ICI
Asia (4) China Eastern Europe (7)
G7 (7) India LAC7 (7) Oth. Adv. Economies
(6)
Brazil0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
12%
2% 2%
34%
4%
7%
19%
27%
17.1%
7.9%
4.3%
36.7%
7.4%
10.0%
23.7%
40.2%
2000-2004 2005-2009
% o
f GD
P
Composition of Pension Fund Investments in Latin America
1999-2004 2005-20080%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
51%45%
21%
16%
9%
8%
6%
12%
11%14%
2% 3%2%
Govt. Securities Fin. Inst. Sec/Deposits Private Bonds Foreign Securities Equities Mutual Funds
Other Investments
% o
f Tot
al P
ortfo
lio
… However, Portfolios are Concentrated in Deposits and Public Bonds
Source: OECD, ABRAPP, AIOSFP, FIAP, and local sources
Asia (2) Eastern Europe (4) G7 (5) LAC7 (5) Other Advanced Economies (6)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
24%
5% 3% 2%7%
37%
40%
16%
32% 26%
16%
10%
11%
19% 20%
1%
6%
1% 1%
5%
34%
20%
20% 16%
7%
10%
25%
22%19%
10%2%
18%
4%10%
Cash and Deposits Public Bonds Private Bonds Loans Equity Mutual Funds Others
% o
f Tot
al
… However, Portfolios are Concentrated in Deposits and Public Bonds
Source: OECD – Latest available information. Data for most countries are from 2009.
Portfolio Holdings of Pension Funds:
Mutual Funds - Portfolio HoldingsBrazil
2003-4 2005-90%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
6% 11%
73%
48%
5%
4%
2%
15%
11%17%
4% 5%
Deposit Certificates Government Bonds Private Bonds Fixed Inc. Sec. Backed by Gov. Debt Equity
Others
% o
f Tot
al A
sset
s
Mutual Fund Assets Also Concentrated in Bonds and MM Instruments
Source: IMF’s IFS, FGV-Rio, Conasev, Superfinanciera, Andimia, and Banxico
Mutual Funds - Portfolio HoldingsChile
2000-4 2005-90%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
63% 63%
17% 13%
4% 9%2%
8%14%
6%
Deposits Private Bonds Domestic Equity Foreign Equity Public Bonds
% o
f Tot
al A
sset
s
Mutual Fund Assets Also Concentrated in Bonds and MM Instruments
Source: IMF’s IFS, FGV-Rio, Conasev, Superfinanciera, Andimia, and Banxico
Mutual Funds - Portfolio HoldingsMexico
2003-4 2005-90%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15% 14%
61% 63%
9% 9%
12% 10%
Deposits Dom. Public Bonds Dom. Private Bonds For. Private Bonds For. Public Bonds Equity Others
%of
Tot
al A
sset
s
Mutual Fund Assets Also Concentrated in Bonds and MM Instruments
Source: IMF’s IFS, FGV-Rio, Conasev, Superfinanciera, Andimia, and Banxico
Among Debt Securities: Pension and Mutual Funds Short Term vs. Insurance Cos.
Maturity Structure of Chilean Domestic Mutual Funds and PFAsvs. Insurance Companies
Avg. Maturity(1) Chilean Insurance Companies 10.32(2) Chilean Domestic Mutual Funds 3.88(3) Chilean PFAs 3.16
Shar
e of
por
tfolio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10
Chilean PFAs
Chilean Domestic Mutual Funds
Chilean Insurance Companies
Years to maturity
Note: This figure compares the maturity structure of Chilean insurance companies to that of Chilean domestic mutual funds and PFAs. Only medium- and long-term bond mutual funds are taken into account. Source: Opazo, Raddatz, Schmukler (2011).
113
Even When Investing Long Term Pays Off
Bond Sharpe Ratio at Different Maturities and Holding Periods
3m 12m 24m 36 m
Indices of Chilean Government Inflation-Indexed Bonds Indices Based on the Estimated Yield Curve
0
0.5
1
1.5
2
2.5
1 2 3 5 6 9 10 12 15 18 20
Sha
rpe
Rat
io
Years to maturity
3m 12m
24m 36m
0
0.5
1
1.5
2
2.5
1 2 3 5 6 9 10 12 15 18 20S
harp
e R
atio
Years to maturity
3m 12m
24m 36m
Note: This figure presents the Sharpe ratios (average returns/standard deviations) of Chilean bonds of different maturities for various holding periods (3 months, 1 year, 2 years, and 3 years). It shows statistics for indices of government inflation-indexed bonds, and using prices from model-based estimations of the yield curve. Source: Opazo, Raddatz, Schmukler (2011).
114
Conclusions
Substantially different & better, even when “insurmountable” Deeper systems, in domestic and international fronts More saving and more resources available in the economy Less crowding out by governments, but governments still large According to some measures, consumers appear to be better served Financial system more complex, somewhat more diversified
• Not that much bank-based• Bonds and equity play bigger role, corporate bonds emerging• Institutional investors much more prominent• Other types of financing taking off
Nature of financing is also changing• Longer maturities and less dollarization – less credit risk• More local financing, though foreign markets important for some• Fewer mismatches in domestic and external balance sheets
Concluding Remarks: Bottom Line
But several countries still lagging behind in many respects Growing divergence and cross-regional heterogeneity
No finance for all! Financial development through capital markets not spread to all firms
Constraints not on the supply side of funds (based on broad data) Constraints likely not on specific regulatory issues
These get much attention at country level, but this is a cross-country issue
Financial intermediation process more difficult than thought First expands to areas relatively easy to finance Incentives might play crucial role for more risk taking Might not yield socially optimal outcome Financial intermediaries brain of the economy, with MS
Concluding Remarks: Bottom Line
Going Long and Riskier
LAC’s current asset managers Charge substantial fees Yet spend mostly in marketing rather than asset management Large chunk of domestic savings intermediated by them Avoid risk taking, denying savers good long-term returns … … and corporations risk capital But at the same time shield them from volatility Herd to be close to the pack
The pitfalls to avoid (U.S.) Excessive risk taking Liquidity fallacy
Going Long and Riskier
Some of the policy challenges Step up the state’s oversight without undermining private monitoring
Promote market discipline through standardization and benchmarking without boosting short-termism
Take more long-term risk while being able to monitor managers
Be contrarian and use potential long-term arbitrage opportunities without generating backlash due to negative outcomes
Develop alternative ways of promoting participation (mandatory participation, shared infrastructure)
Generate healthy competition among financial intermediaries without perverse incentives
Take advantage of useful international diversification
Not clear how to proceed in many areas Institutional investors are emblematic Similarly with banks and capital markets
Nor what to expect of capital market financing Plus lack of obvious paradigm at international level
Collapse of role models: no roadmap after the crisis E.g. what to make of securitization and mortgage financing?
Eventually, need to catch up, grow, and take risk without undermining stability: strong trade-off Macro-prudential policies might not help Hard to distinguish spurious boom from leapfrog Especially for lagging areas and countries
Concluding Remarks: Bottom Line
Thank you!