OECD Journal: Financial Market Trends

1995-2872 (online)
1995-2864 (print)
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The twice-yearly journal from OECD providing timely analyses and statistics on financial matters of topical interest and longer-term developments in specific financial sectors. Each issue provides a brief update of trends and prospects in the international and major domestic financial markets along with articles covering such topics as structural and regulatory developments in OECD financial systems, trends in foreign direct investment, trends in privatization, and financial sector statistics covering areas such as bank profitability, insurance, and institutional investors.

Periodically, a small number of articles within one field of financial sector developments – constituting the so-called special focus for the particular issue – may be included.

Now published as part of the OECD Journal package.


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Mark Number Date Article Volume and Issue Click to Access
  07 July 2016 Estimating the size and incidence of bank resolution costs for selected banks in OECD countries
Marianna Blix Grimaldi, Jörg Hofmeister, Sebastian Schich, Daniel Snethlage

This report provides estimates of the costs associated with bank resolution both in terms of the expected costs that might arise should a bank fail (i.e. as "ex-post" costs), as well as the cost associated with the likelihood that a solvent bank might fail (i.e. as "ex-ante" costs) over the next year. It finds that expected resolution costs (ex-post costs) have dropped recently due to higher average capital ratios and a lower level of bank liabilities as a percentage of GDP. The annualised value of these expected resolution costs (ex-ante costs), which increased sharply after 2008, has since subsided, but remains well above its 2008 level. Overall, the estimates produced in this report support the notion that recent financial sector reforms have had an impact on reducing the costs associated with bank failure, including the expected costs to taxpayers. However, estimates are in most cases yet to return to pre-crisis levels.

Online first Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/estimating-the-size-and-incidence-of-bank-resolution-costs-for-selected-banks-in-oecd-countries_fmt-2016-5jlvbslktw7j
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  25 Apr 2016 Reducing and sharing the burden of bank failures
Jessica Cariboni, Alessandro Fontana, Sven Langedijk, Sara Maccaferri, Andrea Pagano, Marco Petracco Giudici, Michela Rancan, Sebastian Schich

This report demonstrates that the contingent liabilities associated with efforts to limit the adverse externalities stemming from failures in the European banking sector are substantially decreasing as a result of new regulation. Noting that the implied shifting of losses from taxpayers to bank creditors is desirable, the report recognises that losses do not disappear. It discusses the issue of where bank recovery or resolution bail-in losses may go. It underlines that the sectoral allocation of losses matters, but concludes that our understanding needs to be further developed and that more transparency about the structure of bank creditors would be desirable. Increasing transparency in this regard would, among other things, help assure policy makers that the new tools available can be used effectively and smoothly in actual practice. Also, raising awareness of investors in bail-inable bank debt about the associated risks should enhance the credibility of the bail-in framework.

Volume 2015 Issue 2 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/reducing-and-sharing-the-burden-of-bank-failures_fmt-2015-5jm0p43ldl30
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  25 Apr 2016 Financial risks in the low-growth, low-interest rate environment
Iota Kaousar Nassr, Gert Wehinger, Mamiko Yokoi-Arai

The current post-crisis economic and financial landscape has been characterised by rising asset prices – driven by record low interest rates and easy monetary policy – and low productive investment by firms in advanced countries. The OECD Business and Finance Outlook 2015 examines this situation and looks at the way in which companies, banks, institutional investors and shadow banking entities are operating in the low-growth and low-interest rate environment and explores the build-up of risks in the financial system. The "promises" of growth, employment, and adequate retirement income are seen to be at risk in the absence of policy actions. These issues were also discussed at a launch event of that publication, a summary of which is presented in this article.

JEL classification: E2, E4, E5, F21, F23, G1, G2.
Keywords: financial system, financial crisis, asset prices, financial institutions, institutional investors, shadow banking, pension systems, retirement income, financial education.

Volume 2015 Issue 2 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/financial-risks-in-the-low-growth-low-interest-rate-environment_fmt-2015-5jm0p43ndt45
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  25 Apr 2016 Evaluating capital flow management measures used as macro-prudential tools
Adrian Blundell-Wignall, Caroline Roulet

Earlier OECD research has shown that capital flow management measures (CFMs) that are used as macro-prudential measures (MPMs), including currency-based restrictions applied to banks’ operations also with non-residents, have the intended negative impact on capital account openness as measured by covered interest parity indicators. But what is their impact as macro-prudential tools to improve resilience to financial stability risks?
This paper refers to the Bruno and Shin (2013) study that suggests that currency-based restrictions act as an effective macro-prudential buffer by reducing the sensitivity in emerging economies of cross-border bank lending to global credit cycles as measured by the volatility index VIX. The specific restrictions considered by the Bruno and Shin study are defined as CFMs and MPMs by both the IMF and the OECD. The paper shows that this result is mitigated when using updated data and testing the same hypotheses for more countries. Therefore further research is needed before concluding on the effectiveness of CFMs used as MPMs. On the other hand, the paper does find that CFMs, including currency-based measures, play a role in managing the domestic credit implications of those central banks engaged in foreign exchange interventions.
The paper suggests that countries concerned with financial stability risks that may arise from global credit push factors, while wishing to avoid price distortions caused by CFMs, could use Basel III-consistent liquidity coverage ratios and net stable funding ratios as alternatives to CFMs; they also have the advantage of not having raised objections between governments so far regarding international commitments to exchange rate flexibility and cross-border openness, including the OECD Code of Liberalisation of Capital Movements.

Volume 2015 Issue 2 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/evaluating-capital-flow-management-measures-used-as-macro-prudential-tools_fmt-2015-5jm0p44dlq6f
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  03 Feb 2016 Opportunities and limitations of public equity markets for SMEs
Iota Kaousar Nassr, Gert Wehinger

This article on public equity financing for small and medium-sized enterprises (SMEs) complements earlier OECD work on market-based finance for SMEs. The development of this market segment could promote investment in SMEs and, together with securitisation and other non-bank debt financing instruments, encourage an enhanced allocation of risk and risk taking, and thus support growth. Despite the benefits of public SME equity, its share is small and an equity gap exists for risk financing more generally. A number of important impediments to the wider use of public equities for SMEs are identified, such as admission cost and listing requirements, lack of liquidity, educational gaps, limited ecosystems, and tax treatment, all of which require attention by regulators and policy makers alike.

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/opportunities-and-limitations-of-public-equity-markets-for-smes_fmt-2015-5jrs051fvnjk
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  03 Feb 2016 Financial instruments for managing disaster risks related to climate change
Leigh Wolfrom, Mamiko Yokoi-Arai

This article provides an overview of the potential implications of climate change for the financial management of disaster risks. It outlines the contribution of insurance to reducing the economic disruption of disaster events and policy approaches to supporting the penetration of disaster insurance coverage and the capacity of insurance markets to absorb disaster risks, including through the use of capital markets instruments and international co-operation in risk pooling. It concludes with a number of recommendations for improving the financial management of disaster risks in the context of climate change and some areas of further work.

JEL classification: G22, G23, H84, Q54
Keywords: Climate change, natural disasters, extreme events, insurance, reinsurance, catastrophe bonds

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/financial-instruments-for-managing-disaster-risks-related-to-climate-change_fmt-2015-5jrqdkpxk5d5
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  03 Feb 2016 Finance and climate
Jean Boissinot, Doryane Huber, Gildas Lame

Climate change is a major political and economic challenge. This paper sketches out its relevance for the financial sector. Necessary low-carbon investments imply a significant yet manageable financing gap. However, we argue that beyond capital mobilisation that has attracted most attention until now, the main challenge is ensuring a transition-consistent capital reallocation. The financial sector has a key role to play in that respect, complementary to appropriately designed climate policies. To help the financial system fulfil its role, the understanding of the economics of climate change should be deepened and a sector-wide businessoriented appropriation of these issues should be promoted.

JEL classification: Q54, E10, E44, G12, G14, G21, G22, G23, G28.
Keywords: Climate change, low carbon, climate finance, green finance, investment, capital allocation, financial system, risks

Volume 2015 Issue 1 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/finance-and-climate_fmt-2015-5jrrz76d5td5
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  22 Apr 2015 Unlocking SME finance through market-based debt
Iota Kaousar Nassr, Gert Wehinger

Small and medium-sized enterprises (SMEs) are key contributors to economic growth and job creation. The current economic and financial crisis has reduced bank lending and has affected SMEs in particular. Capital markets will have to play a bigger role in financing SMEs in order to make them more resilient to financial shocks. This article reviews the spectrum of alternative market-based debt instruments for SME financing. It focuses on securitisation and covered bonds and also addresses issues regarding small/mid-cap bonds and private placements. It reviews the current state of the market for these instruments and identifies associated risks; analyses the barriers for issuers and investors alike; and provides best practices and high level recommendations to help alleviate barriers without hampering the overall stability of the system.

JEL classification: G1, G2, G23, G28
Keywords: SME finance, SME securitisation, non-bank finance, (high-quality) securitisation, asset-backed securities (ABS), SME CLO (collateralised loan obligation), (covered) bonds, private placements, financial regulation, European DataWarehouse, Prime Collateralised Securities (PCS) initiative

Volume 2014 Issue 2 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/unlocking-sme-finance-through-market-based-debt_fmt-2014-5js3bg1g53ln
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  22 Apr 2015 Why implicit bank debt guarantees matter
Oliver Denk, Sebastian Schich, Boris Cournède

What are the economic effects of implicit bank debt guarantees and who ultimately benefits from them? This paper finds that "financial excesses" – situations where bank credit reaches levels that reduce economic growth – have been stronger in OECD countries characterised by larger values of implicit guarantees and where bank creditors have not incurred losses in bank failure resolution cases. Also, implicit bank debt guarantees benefit financial sector employees and other high-income earners in two ways, increasing income inequality. First, implicit guarantees are likely to raise financial sector pay. This is consistent with the observation of "financial sector wage premia", or financial sector employees earning in excess of their profile in terms of age, education and other characteristics. Second, implicit guarantees are likely to result in more and cheaper bank lending. If so, well-off people tend to benefit relatively more since household credit is more unequally distributed than income.

JEL classification: D63, E43, G21, G28, O47
Keywords: Bank funding costs, implicit guarantees for bank debt, bank failure resolution, finance and growth, finance and income inequality

Volume 2014 Issue 2 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/why-implicit-bank-debt-guarantees-matter_fmt-2014-5js3bfznx6vj
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  22 Apr 2015 Tracing the origins of the financial crisis
Paul Ramskogler

More than half a decade has passed since the most significant economic crisis of our lifetimes and a plethora of different interpretations has been offered about its origins. This paper consolidates the stylised facts put forward so far into a concise and coherent meta-narrative. The paper connects the dots between the arguments developed in the literature on macroeconomics and those laid out in the literature on financial economics. It focuses, in particular, on the interaction of monetary policy, international capital flows and the decisive impact of the rise of the shadow banking industry.

JEL classification: A10, F30, G01
Keywords: Financial crisis, international capital flows, shadow banking

Volume 2014 Issue 2 Click to Access: 
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  • http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/tracing-the-origins-of-the-financial-crisis_fmt-2014-5js3dqmsl4br
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