Philip Turner

Banking Crises in Emerging Economies: Origins and Policy Options

This paper looks at banking crises in the developing world. It discusses eight major types of cause, including both macroeconomic and supervisory factors. It discusses policy options, drawing on actual experience in developing and developed economies. Contains international statistical comparisons.

Interactions Between Sovereign Debt Management and Monetary Policy Under Fiscal Dominance and Financial Instability

This paper argues that serious fiscal vulnerabilities arising from many years of high government debt will create new and complex interactions between public debt management (PDM) and monetary policy (MP). The paper notes that, although their formal mandates have not changed, recent balance sheet policies of many Central Banks (CBs) have tended to blur the separation of their policies from fiscal policy (FP). The mandates of debt management offices (DMOs) have usually had a microeconomic focus (viz, keeping government debt markets liquid, limiting refunding risks etc). Such mandates have usually eschewed any macroeconomic policy dimension. For these reasons, all clashes in policy mandate between CBs and DMOs have been latent and not overt.

Are Banking Systems in East Asia Stronger

The Asian crisis was severe because local banking systems were weak. The major policy effort to improve supervision and strengthen banking systems that followed has achieved substantial results. But these achievements have been somewhat uneven across the region. The current favourable environment should not lull governments into complacency: new risks are arising and continued reforms are needed.

International Financial Reform: Regulatory And Other Issues

This chapter reviews how various mechanisms of prudential oversight over the financial system can help make an economy more resistant to contagious financial shocks.1 Other policy measures that play a useful role in some circumstances — such as capital controls, lender of last resort arrangements and the choice of exchange rate regime — are mentioned only tangentially as they are covered in the chapter by Chang and Majnoni.

The Great Liquidity Freeze: What Does it Mean for International Banking?

In mid-September 2008, following the bankruptcy of Lehman Brothers, international interbank markets froze and interbank lending beyond very short maturities virtually evaporated. Despite massive central bank support operations and purchases of key assets, many financial markets remained impaired for a long time. Why was this funding crisis so much worse than other past major bank failures and why has it proved so hard to cure? This paper suggests that much of that answer lies in the balance sheets of international banks and their customers. It outlines the basic building blocks of liquidity management for a bank that operates in many currencies and then discusses how the massive development of foreign exchange (forex) and interest rate derivatives markets transformed banks’ strategies in this area. It explains how the pervasive interconnectedness between major banks and markets magnified contagion effects. Finally, the paper provides some recommendations for how strategic borrowing choices by international banks could make them more stable and how regulators could assist in this process.

Leverage and currency mismatches: Non-financial companies in the emerging markets

Growing currency mismatches in the emerging market economies (EMEs) since 2010 have been driven by non‐financial companies. Their financing conditions were greatly eased by lower policy rates and a huge expansion in central bank balance sheets in major advanced economies. This has allowed these companies to increase their gearing, notably by greater foreign currency borrowing, thereby greatly increased the risk of currency mismatches. Microeconomic data show that it was not only companies providing tradable goods and services but also those producing non‐tradable goods which have increased their foreign currency borrowing. The across‐the‐board decline in EME companies’ profitability from mid‐2010 to mid‐2015 brought to light significant vulnerabilities and appeared to have constrained business fixed investment, and therefore growth, in the near term. But the strong external asset positions of the official sector in most EMEs will help the authorities cope with these challenges.