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
Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik
Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)
The Institute of Semiconductor Technology and the Institute of Physical and Theoretical Chemistry, both members of the Laboratory for Emerging Nanometrology (LENA), at Technische Universität Braunschweig are partners in a new European research project entitled ChipScope, which aims to develop a completely new and extremely small optical microscope capable of observing the interior of living cells in real time. A consortium of 7 partners from 5 countries will tackle this issue with very ambitious objectives during a four-year research program.
To demonstrate the usefulness of this new scientific tool, at the end of the project the developed chip-sized microscope will be used to observe in real-time...
Astronomers from Bonn and Tautenburg in Thuringia (Germany) used the 100-m radio telescope at Effelsberg to observe several galaxy clusters. At the edges of these large accumulations of dark matter, stellar systems (galaxies), hot gas, and charged particles, they found magnetic fields that are exceptionally ordered over distances of many million light years. This makes them the most extended magnetic fields in the universe known so far.
The results will be published on March 22 in the journal „Astronomy & Astrophysics“.
Galaxy clusters are the largest gravitationally bound structures in the universe. With a typical extent of about 10 million light years, i.e. 100 times the...
Researchers at the Goethe University Frankfurt, together with partners from the University of Tübingen in Germany and Queen Mary University as well as Francis Crick Institute from London (UK) have developed a novel technology to decipher the secret ubiquitin code.
Ubiquitin is a small protein that can be linked to other cellular proteins, thereby controlling and modulating their functions. The attachment occurs in many...
In the eternal search for next generation high-efficiency solar cells and LEDs, scientists at Los Alamos National Laboratory and their partners are creating...
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are less stable. Now researchers at the Technical University of Munich (TUM) have, for the first time ever, produced a composite material combining silicon nanosheets and a polymer that is both UV-resistant and easy to process. This brings the scientists a significant step closer to industrial applications like flexible displays and photosensors.
Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are...
20.03.2017 | Event News
14.03.2017 | Event News
07.03.2017 | Event News
30.03.2017 | Health and Medicine
30.03.2017 | Health and Medicine
30.03.2017 | Medical Engineering