Finance & Banking

MERT BORA

DENİZHAN ÖZFURAT

ÖZLEM MUTCAN

Resources

• Theory

– Michael Woodford, “Financial intermediation and macroeconomic analysis”, The Journal of Economic Perspectives

– Balzs Egert and Ronald MacDonald, “MONETARY TRANSMISSION MECHANISM IN CENTRAL AND EASTERN EUROPE: SURVEYING THE SURVEYABLE”, Journal of Economic Surveys

• Turkey

– Caner Bakir and Ziya Onis, “The Regulatory State and Turkish Banking Reforms in the Age of Post-Washington Consensus”, Development and Change

– Burcu Aydin and Deniz Igan, “Bank Lending in Turkey: Effects of Monetary and Fiscal Policies”, Emerging Markets Finance and Trade

Monetary Policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

Further goals of a monetary policy are usually to contribute to economic growth and stability, to low unemployment, and to predictable exchange rates with other currencies. Monetary policy is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual

Monetary Transmission Mechanism

Monetary Transmission Mechanism

• Change in official interest rates

• Affects banks and money-market interest rates

• Affects expectations

• Affects asset prices

• Affects saving and investment decisions

• Affects the supply of credit

• Leads to changes in aggregate demand and prices • Affects the supply of bank loans

Interest Rate Channel Mechanism

The interest rate channel is a mechanism of monetary policy, whereby a policy-induced change in the short-term nominal interest rate by the central bank affects the price level, and subsequently output and employment While the central bank controls short term nominal interest rates with the federal funds rate, the overall economy is primarily affected by the long-term real interest rates charged by commercial banks to their customers The interest rate channel posits that an increase in the short-term nominal interest rate leads first to an increase in longer-term nominal interest rates In turn, this affects the real interest rate and the cost of capital, because prices are assumed to be sticky in the short-run So an important aspect of this mechanism is the emphasis on the real, rather than the nominal, interest rate, which affects consumer and business decisions

Exchange Rate Channel Mechanism

Beside interest rates, both nominal and real exchange rates play a prominent role in the monetary transmission mechanism The first stage of the transmission mechanism is how monetary policy impacts on exchange rates The second stage is then the pass-through from exchange rates to import and domestic prices, followed by an adjustment in real variables such as imports, exports and investment

Credit Channel Mechanism

The credit channel mechanism of monetary policy describes the theory that a central bank's policy changes affect the amount of credit that banks issue to firms and consumers for purchases, which in turn affects the real economy. Monetary policy transmission mechanisms describe how policy decisions are translated into effects on the real economy Conventional monetary policy transmission mechanisms, such as the interest rate channel, focus on direct effects of monetary policy actions. Changes in the real interest rate influence firm investment and household spending decisions on durable goods

These changes in investment and durable good purchases affect the level of aggregate demand and final production By contrast, the credit channel of monetary policy transmission is an indirect amplification mechanism that works in tandem with the interest rate channel The credit channel affects the economy by altering the amount of credit firms and/or households have access to in equilibrium Factors that reduce the availability of credit reduce agents' spending and investment, which leads to a reduction in output

Bank Lending Channel

The bank lending channel theorizes that changes in monetary policy will shift the supply of intermediated credit, especially credit extended through commercial banks Monetary policy actions may affect the supply of loanable funds available to banks (i.e. a bank's liabilities), and consequently the total amount of loans they can make (i.e. a bank's assets) Thus many agents are dependent on banks to access credit markets If the supply of loanable funds banks possess is affected by monetary policy changes, then so too should be the borrowers who are dependent on banks' funds for business operations Firms reliant on bank credit may either be shut off from credit temporarily or incur additional search costs to find a different avenue through which to obtain credit

« The Regulatory State and Turkish Banking Reforms in the Age of Post-Washington Consensus » by Caner Bakir and Ziya Onis Examination of the Turkish banking sector experience with the PWC in the aftermath of the 2001 financial crisis to show its considerable strengths and weaknesses Washington Consensus – Post Washington Consensus The new regulatory state

Finance and banking in Turkey

Washington Consensus

This is the set of 10 policies that the US government and the international financial institutions based in the US capital believed were necessary elements of “first stage policy reform” that all countries should adopt to increase economic growth • Fiscal discipline • Public expenditure priorities • Tax reform • Financial liberalization • Exchange rates • Trade liberalization • Increasing foreign direct investment (FDI) • Privatization • Deregulation • Secure intellectual property rights (IPR) • Reduced role for the state

Post Washington Consensus

Criticism of many of the Washington consensus policies, including evidence of their detrimental impact on health, led to the development of the post-Washington consensus • Manage liberalized trade, finance and monetary systems • Include the creation of enforceable codes and standards, and concessions to social

welfare through targeted social safety nets • Create vertical and horizontal policy coherence • Include businesses and firms in a Global Compact for Development and the PRSP

process

Introduction

• Regulatary state and capitalism period in the world economies after failure of neoliberal policies in the 90’s

• Washington Consensus, particularly IMF in an identity crisis after Asian financial crisis in 97

• Need to re-regulate

• Development in place of growth

• Turkey as a study of PWC and IMF, particularly after 2001 crisis

Turkey adopted more liberal policies – like every other country

1980-90’s, Turkey is caracterized by low levels of accountability, politicization of system and economy

Deep democratic deficits

Budged deficits, public debt, inflation, low economic growth

Rent seeking activities rather than productive financial intermediation

Turkey in 1990’s

Soft budget constraint – crowding out of private investment by public debt

Between 92-99: real interest rate of government securities 32%

Banks channelled funds to government lending – crowding out

High degree of politicization in lending and regulation - corruption

Therefore, inefficient allocation of credit

Licensing, regulation and supervision under political influence

Another big obstacle – ultimate decision making power on bank licensing at the hands of economics ministers

WC framework failed in Turkey, weak domestic institutional environment contributed

New financial programme December 1999

• Rehabilitation of insolvent public banks

• Enactment of EU banking norms, Basel II

• Establishment of independent financial regulatory agency

• Legal independence to Central Bank

Movement towards depoliticization of banking sector

Post 2001 Crisis

These precautions and regulations could not prevent 2001 crisis

Crisis is actually an opportunity for restructuring and policy entrepreneurship

Appointment of Kemal Dervis – policy entrepreneur

Mediation between domestic and transnational policy communities

Implementation of IMF program in order to get USD 19 bn

Political Environment - AKP

Transformation in the political environment

First single party government in 15 years

AKP government adopted and implemented The Transition Program made by Dervis

AKP committed to fight corruption, make structural economic reforms, meet Copenhagen criteria

Democratization process

Improvements in Banking Sector

Between 2002-2008

• Budget deficit from 10% to 2%

• Public debt from 73% to 39%

• Inflation rate averaged 13%

• Growth 6%

• NPL ratio 29& in 2001 – 3.6% in 2008

PWC has its strengths, but it also has weaknesses

There were 4 weaknesses:

• New banking regulatory regime privileged the interests of financial capital – High penetration of foreign bank capital

– 5 banks sold to foreign banks

– Market concentration in the hands of foreign banks

– Financialization

• Not successful in channelling domestic savings into productive investment, finance became engine of growth rather than production – Share of fixed capital 24% not increased between 02-07 despite growth

– Savings to gdp ratio declined

– Financialization due high interest rates, debt driven economic growth

– LT foreign debt increased 324% between 02-08

• Negative income distribution consequences – Rapid growth of household debt

– Individual loan share in consumption from 2.5% to 15%

– 4 fold increase in average indebtness

• Still institutional weaknesses – Absence of strong institutional infrastructure

– Postponement of institutional reforms

– Most banks did not have own risk management system

Conclusion

Turkish banking sector is in a much more better place than 2001

• Forex and interest rate risks minimized

• Low NPL ratio

• New banking law and regulations

But stability, from a developmental and income distributional perspective, is much less impressive

• Weak share of savings and capital investments

• Increased household debt

PWC is proved to be more successful than WC, especially in Turkey example

Crisis and Transformations in Turkish Political Economy

The nature of Post-war Economic Growth

1908- 1922 Turning point of Turkish economy

1930s Experiencing its first wave of import- substituting industrialization

Turkey is a case of moderate economic growth

Grafik 1

East Asian Tigers and Turkish Emerging markets

Quality of democracy and long term economic performance in Turkey

Kaynak : Source: GNP data at constant prices are obtained from TUIK, İstatistik Göstergeler-1923-2007.

Major Policy Phases and Transformation of Turkish Capitalism

4 Major Phases in Turkey

1950s liberal turn

1960s-1970s

1980s-1990s

Neoliberalism with strong regulatory institutions

Principal Policy Phases and Transformation of Turkish Big Business

Major Economics Crises and Political Breakdowns

Single Party versus Coalition Governments and Linkage to Instability

The Unique Nature of the 2008-2009 Crisis

Crisis of the periphery ,1990s

Global crisis of the center , 2008-2009

Turkey needs the major tax reform and an

educational reform

Conclusion

• One of the key lesson is that Turkey’s democratic deficits have prevented the achievement of

high economic growth.

BANKA KREDİ KANALI VE PARA AKTARIM

MEKANİZMASI

Parasal aktarım kanalları:

• Bilanço kanalı

• Banka kredi kanalı

• Kredi kanalı

• Risk alma kanalı

Kredi kanalının temelini;

• Piyasalardaki asimetrik bilgi

• Sürtünmeler

Oluşturur.

Risk alma kanalı ise ekonomik birimlerin risk algılama ve fiyatlandırma davranışlarına vurgu yapar.

• 2000-2001 krizlerini takip eden dönemde yeniden yapılanma ve reform

• Bankacılık Denetleme ve Düzenleme Kurumu (2000)

• Enflasyon tek hane

• 2002 yılında örtük enflasyon hedeflemesi

• 2006 yılında örtük olmayan enflasyon hedeflemesi

Esnek veya örtük enflasyon hedeflemesi; merkez bankasının enflasyon hedefinin yanında diğer değişkenlerle de ilgilenmesidir. Örneğin, döviz kurları, faiz oranları, üretim ve istihdam gibi.

• Para politikasındaki değişiklikler bankaların yükümlülüklerini ve

varlıklarını etkiler. Böylelikle verebilecekleri kredi miktarını ve kredi

faizini değiştirir.

• Araştırmacılar banka kredi kanalını banka düzeyinde veri kullanarak panel

veri analiz yöntemleriyle araştırmaya yönelmişlerdir. Banka düzeyinde veri

kullanılması, para politikası değişikliklerinin banka kredi arzı üzerinde

meydana getirdiği farklılaşmanın incelenmesine ve dolayısıyla, banka kredi

kanalının işleyip işlemediğinin anlaşılmasına olanak sağlamaktadır.

• 2000-2001 dönemi bir yapısal kırılma.

• Krizden sonra banka kredi kanalının işlerliğinde bir farklılık oldu mu?

• CAMEL: çeşitli ülkelerin bankacılık denetim otoriteleri tarafından

kullanılan bir derecelendirme sistemidir. Bankaların finansal güvenilirliğini

ve sağlamlığını gösteren 5 bileşenden oluşur:

sermaye yeterliliği (capital adequacy)

varlık kalitesi (asset quality)

Yönetim yeterliliği (management adequacy)

Gelirler (earnings)

Likidite (liquidity)

• Panel regresyon sonuçları Türkiye için 1998-2000 döneminde banka kredi

kanalının varlığına işaret etmektedir.

• Sermaye yeterliliği, likidite ve varlık kalitesinin banka kredi arzını pozitif

yönde etkilediğini göstermektedir.

• Büyüklük ve banka kredileri arasında ters ilişki.

• 1988-2001 ve 2002-2009 dönemlerine ait regresyonda, katsayıların

büyüklük ve işaretlerinde önemli farklar olduğu görülmektedir. Bu durum

da kriz öncesi ve sonrasında banka kredi kanalının işleyişinde farklılıklar

olduğuna işaret etmektedir.

• Banka kredi kanalı kriz sonrasında daha etkin hale geliyor.

• 2000-2001 krizi sonrasında para politikası yapısındaki değişiklik ve

ekonomik göstergelerdeki iyileşmeler para politikasının etkinliğini

azaltmıştır.

• Kriz öncesi; bankalar özel kesime kredi yerine, kaynaklarını bütçe

finansmanına yatırıyordu. (financial crowding out)

• Kriz sonrası; etkin para politikası

• Bankaların özel sektöre sağladığı krediler artıyor.

• Bankacılık sektöründe yapısal reformlar

• Bankaların bilanço yapıları güçlendi, ekonomik faaliyetin finansmanında

etkin rol oynadılar.

• Regresyon sonuçları:

Her iki dönem için de büyüklük, sermaye yeterliliği, likidite ve varlık

kalitesi anlamlıdır.

Gelirler değişkeni de her iki dönem istatistiksel olarak anlamlıdır

fakat katsayı işaretleri farklıdır.

Yönetim kalitesi sadece 2002-2009 dönemi için anlamlı çıkmıştır.

Kriz öncesi dönemde sadece gelirler ve varlık kalitesinin parasal

şokların bankaların kredi verme davranışları üzerinde yarattığı etkilerin

farklılaşmasında rol oynuyordu. Fakat büyüklük, sermaye yeterliliği, likidite,

varlık kalitesi ve yönetim etkinliği kriz sonrası dönemde kredi arzı

değişmelerindeki farklılaşmada rol oynayan bankalara özgü özellikler olarak

ortaya çıkmaktadırlar.

• Para politikası değişikliği ile kredi büyüklüğü arasında ters ilişki

• Sıkı para politikası kredi büyüklüğünü azaltır.

• 2000-2001’den sonra para politikası etkinliği arttı. Neden?

1. Enflasyon hedefli büyüme

2. Dalgalı döviz kuru

3. Zayıflayan vergi yükleri

4. Azaltılan dolarizasyon

Krizden önce «sıcak para» politikası.

• İlk dönemde bankalar devlete odaklı(bütçe açığı finansmanı)

• Crowding out effect

• Vergi baskısı bağımsız para politikasını engelledi

• İkinci dönemde yeni düzenlemeler ve BDDK kurulması

• Bankalar daha çok tüzel kişilere yönelebildi

• Sermaye yapısı yenilendi, kırgınlık azaldı

• Sonuç olarak:

- reel faiz oranları düştü

-enflasyon ve bütçe açığı azaldı

-kredi talebi arttı

• Böylelikle bankalar aracı rolünü daha etkin biçimde yapmaya başladı.

• GDP etkisi – garip bi şekilde ilk periyotta daha fazla. Neden?

• Enflasyon etkisi

• Bank size and growth rate of loans – negative relationship.

• Small banks lend more.

• İnteraction of bank size with monetary policy

• Capitalization

• Liquidity ratio

Highly liquid banks, likely to expand their supply of loans

• Earnings capacity

- ikinci periyotta olması gerekenden farklı. Neden?

• Asset quality

- Better loan portfolio, better ability to raise external funds and shield theri loan supply

• Managerial quality

- financially sound banks with high managerial quality manage risks of lending and reallocate more funds to provision of credit.