Notes on Financial System Development and Political Intervention
The paper studies the impact of political intervention on a financial system that consists of banks and financial markets and develops over time. In this financial system, banks and markets exhibit three forms of interaction: they compete, they com...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/01/17206614/notes-financial-system-development-political-intervention http://hdl.handle.net/10986/13162 |
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okr-10986-13162 |
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| recordtype |
oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ALLOCATION OF CAPITAL ALLOCATION OF CREDIT ASSET-BACKED SECURITIES ASSET-LIABILITY MATCHING ASYMMETRIC INFORMATION BACKED SECURITIES BAD CREDIT BALANCE-SHEET BANK CAPITAL BANK DEBT BANK EQUITY BANK FAILURES BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANK PROFITABILITY BANK PROFITS BANKING INDUSTRY BANKING SCOPE BANKING SECTOR BANKING SYSTEM BANKING SYSTEM DEVELOPMENT BANKS BONDS BORROWER BRIBES CAPACITY BUILDING CAPITAL ALLOCATION CAPITAL MARKET CAPITAL MARKET FINANCING CAPITAL MARKETS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL STRUCTURE CD COMMERCIAL PAPER COMPETITIVE MARKETS COORDINATION FAILURES CORPORATE GOVERNANCE COST OF CREDIT CREDIT ACCESS CREDIT ANALYSIS CREDIT AVAILABILITY CREDIT DECISION CREDIT EXTENSION CREDIT INFORMATION CREDIT MARKET CREDIT MARKETS CREDIT QUALITIES CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATIONING CREDIT REPORTING CREDIT RISKS CREDIT TERMS CREDITOR CREDITOR RIGHTS CREDITORS CREDITWORTHY BORROWER CREDITWORTHY BORROWERS DEBT DEBT CONTRACTS DEBT SECURITY DENIAL OF CREDIT DEPENDENT DEPOSIT DEPOSITS DIRECT BANK LENDING ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EQUITY CAPITAL EXCLUSION EXTERNAL FINANCE EXTERNAL FINANCING FEDERAL RESERVE FINANCES FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL STRUCTURE FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEM DEVELOPMENT FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIERS FINANCING SOURCES FIXED COST FORMS OF CREDIT GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT OWNERSHIP GOVERNMENT SUBSIDIES HOLDING HOME PURCHASES HOMEOWNERSHIP INFORMATION ACQUISITION INFORMATION ASYMMETRIES INFORMATION DISCLOSURE INFORMATION DISCLOSURE COSTS INFORMATION TECHNOLOGY INFORMATIONAL ASYMMETRIES INFORMED INVESTOR INFORMED INVESTORS INTERNATIONAL BANK INVESTING INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENT PROCESS JUDICIAL SYSTEM JUDICIAL SYSTEMS LABOR FORCE LAWS LEGAL SYSTEMS LEGISLATION LENDERS LENDING REGULATION LENDING REGULATIONS LIABILITY LIQUIDITY LOAN LOSSES ON BANKS MACROECONOMIC CONDITION MANDATE MANDATES MARKET DEVELOPMENT MARKET DISTORTIONS MARKET EQUILIBRIUM MARKET FAILURE MARKET FAILURES MARKET FINANCES MARKET INFORMATION MARKET PRICE MARKET PRICES MARKET TRADING MORTGAGE MORTGAGES OPTIMAL CONTRACTS PARTICIPATION CONSTRAINT PAYOFF POLITICAL ECONOMY POTENTIAL BORROWERS PRICE FORMATION PROFITABILITY PROPERTY RIGHTS PROPRIETARY INFORMATION REAL SECTOR RELATIONSHIP BANKING RETURN RETURNS RISK SHARING RISKY BORROWERS SECURITIZATION SECURITY PRICES SHAREHOLDER STOCK EXCHANGES STOCK MARKETS SYSTEMIC RISK TELLERS TRADING TRADING VENUE TRANSITION ECONOMIES USE OF DEBT |
| spellingShingle |
ALLOCATION OF CAPITAL ALLOCATION OF CREDIT ASSET-BACKED SECURITIES ASSET-LIABILITY MATCHING ASYMMETRIC INFORMATION BACKED SECURITIES BAD CREDIT BALANCE-SHEET BANK CAPITAL BANK DEBT BANK EQUITY BANK FAILURES BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANK PROFITABILITY BANK PROFITS BANKING INDUSTRY BANKING SCOPE BANKING SECTOR BANKING SYSTEM BANKING SYSTEM DEVELOPMENT BANKS BONDS BORROWER BRIBES CAPACITY BUILDING CAPITAL ALLOCATION CAPITAL MARKET CAPITAL MARKET FINANCING CAPITAL MARKETS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL STRUCTURE CD COMMERCIAL PAPER COMPETITIVE MARKETS COORDINATION FAILURES CORPORATE GOVERNANCE COST OF CREDIT CREDIT ACCESS CREDIT ANALYSIS CREDIT AVAILABILITY CREDIT DECISION CREDIT EXTENSION CREDIT INFORMATION CREDIT MARKET CREDIT MARKETS CREDIT QUALITIES CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATIONING CREDIT REPORTING CREDIT RISKS CREDIT TERMS CREDITOR CREDITOR RIGHTS CREDITORS CREDITWORTHY BORROWER CREDITWORTHY BORROWERS DEBT DEBT CONTRACTS DEBT SECURITY DENIAL OF CREDIT DEPENDENT DEPOSIT DEPOSITS DIRECT BANK LENDING ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EQUITY CAPITAL EXCLUSION EXTERNAL FINANCE EXTERNAL FINANCING FEDERAL RESERVE FINANCES FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL STRUCTURE FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEM DEVELOPMENT FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIERS FINANCING SOURCES FIXED COST FORMS OF CREDIT GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT OWNERSHIP GOVERNMENT SUBSIDIES HOLDING HOME PURCHASES HOMEOWNERSHIP INFORMATION ACQUISITION INFORMATION ASYMMETRIES INFORMATION DISCLOSURE INFORMATION DISCLOSURE COSTS INFORMATION TECHNOLOGY INFORMATIONAL ASYMMETRIES INFORMED INVESTOR INFORMED INVESTORS INTERNATIONAL BANK INVESTING INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENT PROCESS JUDICIAL SYSTEM JUDICIAL SYSTEMS LABOR FORCE LAWS LEGAL SYSTEMS LEGISLATION LENDERS LENDING REGULATION LENDING REGULATIONS LIABILITY LIQUIDITY LOAN LOSSES ON BANKS MACROECONOMIC CONDITION MANDATE MANDATES MARKET DEVELOPMENT MARKET DISTORTIONS MARKET EQUILIBRIUM MARKET FAILURE MARKET FAILURES MARKET FINANCES MARKET INFORMATION MARKET PRICE MARKET PRICES MARKET TRADING MORTGAGE MORTGAGES OPTIMAL CONTRACTS PARTICIPATION CONSTRAINT PAYOFF POLITICAL ECONOMY POTENTIAL BORROWERS PRICE FORMATION PROFITABILITY PROPERTY RIGHTS PROPRIETARY INFORMATION REAL SECTOR RELATIONSHIP BANKING RETURN RETURNS RISK SHARING RISKY BORROWERS SECURITIZATION SECURITY PRICES SHAREHOLDER STOCK EXCHANGES STOCK MARKETS SYSTEMIC RISK TELLERS TRADING TRADING VENUE TRANSITION ECONOMIES USE OF DEBT Song. Fenghua Thakor, Anjan Notes on Financial System Development and Political Intervention |
| relation |
Policy Research Working Paper;No. 6350 |
| description |
The paper studies the impact of
political intervention on a financial system that consists
of banks and financial markets and develops over time. In
this financial system, banks and markets exhibit three forms
of interaction: they compete, they complement each other,
and they co-evolve. Coevolution is generated by two new
ingredients of financial system architecture relative to the
existing theories: securitization and risk-sensitive bank
capital. The authors show that securitization propagates
banking advances to the financial market, permitting market
evolution to be driven by bank evolution, and market
advances are transmitted to banks through bank capital. Then
they examine how politicians determine the nature of
political intervention designed to expand credit
availability. The authors find that political intervention
in banking exhibits a U-shaped pattern, where it is most
notable in the early stage of financial system development
(through bank capital subsidy in exchange for state
ownership of banks) and in the advanced stage (through
direct lending regulation). Despite expanding credit access,
political intervention results in an increase in financial
system risk and does not contribute to financial system
evolution. Numerous policy implications are drawn out. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Song. Fenghua Thakor, Anjan |
| author_facet |
Song. Fenghua Thakor, Anjan |
| author_sort |
Song. Fenghua |
| title |
Notes on Financial System Development and Political Intervention |
| title_short |
Notes on Financial System Development and Political Intervention |
| title_full |
Notes on Financial System Development and Political Intervention |
| title_fullStr |
Notes on Financial System Development and Political Intervention |
| title_full_unstemmed |
Notes on Financial System Development and Political Intervention |
| title_sort |
notes on financial system development and political intervention |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2013/01/17206614/notes-financial-system-development-political-intervention http://hdl.handle.net/10986/13162 |
| _version_ |
1764422844025929728 |
| spelling |
okr-10986-131622021-04-23T14:03:07Z Notes on Financial System Development and Political Intervention Song. Fenghua Thakor, Anjan ALLOCATION OF CAPITAL ALLOCATION OF CREDIT ASSET-BACKED SECURITIES ASSET-LIABILITY MATCHING ASYMMETRIC INFORMATION BACKED SECURITIES BAD CREDIT BALANCE-SHEET BANK CAPITAL BANK DEBT BANK EQUITY BANK FAILURES BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANK PROFITABILITY BANK PROFITS BANKING INDUSTRY BANKING SCOPE BANKING SECTOR BANKING SYSTEM BANKING SYSTEM DEVELOPMENT BANKS BONDS BORROWER BRIBES CAPACITY BUILDING CAPITAL ALLOCATION CAPITAL MARKET CAPITAL MARKET FINANCING CAPITAL MARKETS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL STRUCTURE CD COMMERCIAL PAPER COMPETITIVE MARKETS COORDINATION FAILURES CORPORATE GOVERNANCE COST OF CREDIT CREDIT ACCESS CREDIT ANALYSIS CREDIT AVAILABILITY CREDIT DECISION CREDIT EXTENSION CREDIT INFORMATION CREDIT MARKET CREDIT MARKETS CREDIT QUALITIES CREDIT QUALITY CREDIT RATING CREDIT RATING AGENCIES CREDIT RATIONING CREDIT REPORTING CREDIT RISKS CREDIT TERMS CREDITOR CREDITOR RIGHTS CREDITORS CREDITWORTHY BORROWER CREDITWORTHY BORROWERS DEBT DEBT CONTRACTS DEBT SECURITY DENIAL OF CREDIT DEPENDENT DEPOSIT DEPOSITS DIRECT BANK LENDING ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EQUITY CAPITAL EXCLUSION EXTERNAL FINANCE EXTERNAL FINANCING FEDERAL RESERVE FINANCES FINANCIAL CONTRACTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL STRUCTURE FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEM DEVELOPMENT FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIERS FINANCING SOURCES FIXED COST FORMS OF CREDIT GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT OWNERSHIP GOVERNMENT SUBSIDIES HOLDING HOME PURCHASES HOMEOWNERSHIP INFORMATION ACQUISITION INFORMATION ASYMMETRIES INFORMATION DISCLOSURE INFORMATION DISCLOSURE COSTS INFORMATION TECHNOLOGY INFORMATIONAL ASYMMETRIES INFORMED INVESTOR INFORMED INVESTORS INTERNATIONAL BANK INVESTING INVESTMENT DECISIONS INVESTMENT OPPORTUNITIES INVESTMENT PROCESS JUDICIAL SYSTEM JUDICIAL SYSTEMS LABOR FORCE LAWS LEGAL SYSTEMS LEGISLATION LENDERS LENDING REGULATION LENDING REGULATIONS LIABILITY LIQUIDITY LOAN LOSSES ON BANKS MACROECONOMIC CONDITION MANDATE MANDATES MARKET DEVELOPMENT MARKET DISTORTIONS MARKET EQUILIBRIUM MARKET FAILURE MARKET FAILURES MARKET FINANCES MARKET INFORMATION MARKET PRICE MARKET PRICES MARKET TRADING MORTGAGE MORTGAGES OPTIMAL CONTRACTS PARTICIPATION CONSTRAINT PAYOFF POLITICAL ECONOMY POTENTIAL BORROWERS PRICE FORMATION PROFITABILITY PROPERTY RIGHTS PROPRIETARY INFORMATION REAL SECTOR RELATIONSHIP BANKING RETURN RETURNS RISK SHARING RISKY BORROWERS SECURITIZATION SECURITY PRICES SHAREHOLDER STOCK EXCHANGES STOCK MARKETS SYSTEMIC RISK TELLERS TRADING TRADING VENUE TRANSITION ECONOMIES USE OF DEBT The paper studies the impact of political intervention on a financial system that consists of banks and financial markets and develops over time. In this financial system, banks and markets exhibit three forms of interaction: they compete, they complement each other, and they co-evolve. Coevolution is generated by two new ingredients of financial system architecture relative to the existing theories: securitization and risk-sensitive bank capital. The authors show that securitization propagates banking advances to the financial market, permitting market evolution to be driven by bank evolution, and market advances are transmitted to banks through bank capital. Then they examine how politicians determine the nature of political intervention designed to expand credit availability. The authors find that political intervention in banking exhibits a U-shaped pattern, where it is most notable in the early stage of financial system development (through bank capital subsidy in exchange for state ownership of banks) and in the advanced stage (through direct lending regulation). Despite expanding credit access, political intervention results in an increase in financial system risk and does not contribute to financial system evolution. Numerous policy implications are drawn out. 2013-04-11T19:46:52Z 2013-04-11T19:46:52Z 2013-01 http://documents.worldbank.org/curated/en/2013/01/17206614/notes-financial-system-development-political-intervention http://hdl.handle.net/10986/13162 English en_US Policy Research Working Paper;No. 6350 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |