A well-functioning financial system can contribute to economic growth in poor countries. But many countries that have tried to transform their financial systems have suffered banking crises and financial instability – especially where reforms have not been accompanied by improvements to regulation. Some commentators believe that the continued presence of state banks is partly to blame.
Research from the University of Leicester and Brunel University, UK, examines what determines the share of government-owned banks in a country’s banking system. As state banks are less efficient – and have been linked with slow economic growth and financial instability – why do they still exist? The researchers ask: what determines customer behaviour where there is a choice between private and state banks?
The research highlights the problem of ineffective rules and regulations. Public mistrust of banks is a serious problem in many poor countries. People believe that without adequate rules and regulations in place to protect them, private banks might refuse to honour their contracts. Where regulation is weak and public mistrust of banks is high, customers will either choose state banks or turn away from the banking system altogether.
The institutions identified as most important for increasing public trust in the private banking system include: the overall quality of the regulatory system, strong disclosure requirements, contract enforcement systems and the broader rule of law.
The research finds that:
· Good institutions are key to encouraging the growth and development of a private banking system.
· Effective market regulation increases public confidence in private sector banking practices.
· Strict disclosure rules prevent rogue private banks from entering the market.
· Banking crises cause public mistrust of the private banking system.
· Better regulation and improved disclosure lead to a reduction in government ownership of banks.
Poor countries need to establish effective rules and regulations in order to benefit from well-functioning financial systems. But institution-building is a lengthy process which can get interrupted by political pressures (opposition to reform).
The implications of the research include:
· Governments should build institutions which encourage the growth of private banking.
· However, state banks can play a useful role before quality institutions are put in place.
· Enhancing market regulation and strengthening disclosure rules are particularly effective ways of raising public confidence in private banks.
· State banks should not be subsidised or privatised prematurely before effective regulation is in place.
· More research into the political forces that support or oppose financial system reform would be useful.
Alex Jelley | alfa
Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik
RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung
Scientists from the University of Freiburg and the University of Basel identified a master regulator for bone regeneration. Prasad Shastri, Professor of...
Moving into its fourth decade, AchemAsia is setting out for new horizons: The International Expo and Innovation Forum for Sustainable Chemical Production will take place from 21-23 May 2019 in Shanghai, China. With an updated event profile, the eleventh edition focusses on topics that are especially relevant for the Chinese process industry, putting a strong emphasis on sustainability and innovation.
Founded in 1989 as a spin-off of ACHEMA to cater to the needs of China’s then developing industry, AchemAsia has since grown into a platform where the latest...
The BMBF-funded OWICELLS project was successfully completed with a final presentation at the BMW plant in Munich. The presentation demonstrated a Li-Fi communication with a mobile robot, while the robot carried out usual production processes (welding, moving and testing parts) in a 5x5m² production cell. The robust, optical wireless transmission is based on spatial diversity; in other words, data is sent and received simultaneously by several LEDs and several photodiodes. The system can transmit data at more than 100 Mbit/s and five milliseconds latency.
Modern production technologies in the automobile industry must become more flexible in order to fulfil individual customer requirements.
An international team of scientists has discovered a new way to transfer image information through multimodal fibers with almost no distortion - even if the fiber is bent. The results of the study, to which scientist from the Leibniz-Institute of Photonic Technology Jena (Leibniz IPHT) contributed, were published on 6thJune in the highly-cited journal Physical Review Letters.
Endoscopes allow doctors to see into a patient’s body like through a keyhole. Typically, the images are transmitted via a bundle of several hundreds of optical...
Light detection and control lies at the heart of many modern device applications, such as smartphone cameras. Using graphene as a light-sensitive material for...
13.06.2018 | Event News
08.06.2018 | Event News
05.06.2018 | Event News
19.06.2018 | Physics and Astronomy
19.06.2018 | Life Sciences
19.06.2018 | Physics and Astronomy