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In early 1999, the OECD launched an internationally comparable study of the diffusion and economic and competitive impacts of business-to-business electronic commerce over the Internet. A first set of case studies was conducted in France between February 1999 and September 1999. Three sectors were chosen for their different characteristics: book publishing, mass retail distribution (clothing, textiles, food and drink, furnishings, etc.) and pharmaceuticals distribution. The differences across sectors are substantial and relate to the nature of the product (whether it can be digitised, is costly or is perishable), the nature of transactions between suppliers and purchasers, the market structure and regulation. This report gives a first set of results concerning sectoral differences in the spread of business-to-business electronic commerce and related organisational and economic effects.

This report uses a standard gravity setup to analyse the determinants of e-commerce, using data on online credit card payments by private Spanish customers of the multinational bank BBVA. The results show that the gravity model applies well to credit card payments, explaining up to 95% of the variation in the data. The analysis finds potentially large border effects for trade between any two regions or countries, implying that individuals tend to purchase more from their home region or domestically than from other places. The estimates also suggest that the effect of distance might be slightly less important for e-commerce transactions than for offline trade, although the death of distance hypothesis is clearly rejected by the data.

This background paper has been prepared to provide a broad overview of the issues associated with spam as information for participants at the OECD Workshop on Spam, to be held at the European Commission on 2-3 February 2004.
French

This article discusses why the composition of emergency fiscal packages in response to the COVID-19 pandemic make it important for governments to monitor and manage their balance sheets going forward. It analyses current practices with transparency and risk analysis concerning balance sheet-based measures drawn from case studies of nine OECD countries. It then identifies further steps governments should consider to increase transparency and strengthen risk analysis on COVID-19 related balance sheet-based policies that will help to strengthen fiscal frameworks.

The overarching question for the government owners of state-owned enterprises (SOEs) is why these companies need to be owned by the state. The OECD Guidelines on Corporate Governance of State-Owned Enterprises provides a “blueprint” for the corporatisation and commercialisation of such enterprises, but it may be assumed that the reason for continued state ownership is that they are expected to act differently from private companies. A relatively clear case occurs when SOEs are established with the purpose of pursuing mostly non-commercial activities. In many cases, their activities might otherwise be carried out by government institutions; the SOE incorporation has been chosen mostly on efficiency grounds.

A number of other rationales for public ownership of enterprises have been offered, including: (i) monopolies in sectors where competition and market regulation is not deemed feasible or efficient; (ii) market incumbency, for instance in sectors where competition has been introduced but a state-owned operator remains responsible for public service obligations; (iii) imperfect contracts, where those public service obligations that SOEs are charged with are too complex or malleable to be laid down in service contracts; (iv) industrial policy or development strategies, where SOEs are being used to overcome obstacles to growth or correct market imperfections...

In order to meet the challenges of providing affordable public transit services for the urban poor and at a cost that doesn’t impinge on the system’s financial sustainability, cities can consider setting fares at “cost recovery” levels for the majority of the population and targeting subsidies to those who need them most. Bogotá is a case in point—the new public transport system was designed so fares are set close to “cost recovery” levels to aim for greater financial sustainability. To provide affordable services, the city leveraged the adoption of smartcards in its new public transit system and the country’s poverty targeting instruments to implement a pro-poor public transit subsidy. This paper presents a critical analysis of Bogotá’s experience with trying to balance financial sustainability and affordability. The paper describes some of the features of Bogota’s tariff policy, namely, the concept of tariff set at “cost recovery” levels and lessons learnt in trying to achieve financial sustainability. The paper also lays out the rationale, design and implementation of Bogota’s pro-poor public transit subsidy, and the subsidy’s impact on its beneficiaries.

In recent years, a series of wide-ranging reforms designed to make greater use of market mechanisms has succeeded in eliminating shortages, raising efficiency and improving citizen satisfaction. Nevertheless, spending accelerated after the reforms, and per capita spending on health is now one of the highest in the OECD. Centralisation of hospital ownership may have increased political influence, encouraging spending that cannot be justified on cost-benefit grounds. Co-payments by patients are modest, and the background of swelling oil wealth may have sapped willingness to control costs. Diagnosis related group (DRG) procedures are arguably too well-remunerated in some areas, leading to supply-driven interventions, while their absence in others (e.g. psychiatry) may have resulted in sub-optimal supply. Generalist doctors have a gatekeeper role, but are said to over-refer patients to hospitals. Although cost controlling mechanisms exist in Norway, they are too often sidestepped by pressure by citizens on politicians to approve new drugs and treatments. Thus, future health reforms in Norway should concentrate on value for money. This paper relates to the 2005 OECD Economic Survey of Norway (www.oecd.org/eco/survey/norway).
This report explores the development of implementation strategies used to enhance the programme “Assessment for Learning – 2010-2014” in Norwegian schools. Norway’s educational governance is highly decentralised, with 428 municipalities and 19 counties responsible for implementing education activities, organising and operating school services, allocating resources and ensuring quality improvement and development of their schools. This case study is based on56 interviews with 98 key actors and stakeholders in the Norwegian education system, as well as analysis of key policy and legal documents and a range of media articles. Key findings include the importance of clear communication between governance levels and a high degree of trust between stakeholders; the need for a clear understanding of programme goals, the role of learning networks between schools to aid the exchange of knowledge and provide peer support during the implementation process. Innovative forms of capacity building were of particular importance for the smaller municipalities, who reported being overextended by the continual stream of policy changes and struggling with prioritising activities. The case study also provides a series of recommendations for improvement.
The generous Danish welfare state relies on a high degree of labour force participation both for financing and in order to ensure social cohesion. This underlines the need for getting work incentives right and improve the employability of vulnerable groups of workers, in particular migrants. Many benefit recipients also face high marginal tax rates for returning to work, creating a barrier for inclusion. Likewise, as the population ages, the need for longer working lives becomes a central aim. In Denmark, much has been done to keep older workers in the labour market, but there is further scope for reducing barriers to work for this group, including through the design of the pension system. Cost pressures at social institutions could be addressed by better reaping the effects on municipal reform, more coordination between different service providers, and open the market for social services, for instance old age care, for private suppliers under a strict quality monitoring framework.

The main hallmarks of the global financial crisis were too-big-to-fail institutions taking on too much risk with other people’s money: excess leverage and default pressure resulting from contagion and counterparty risk. This paper looks at whether the Basel III agreement addresses these issues effectively. Basel III has some very useful elements, notably a (much too light “back-up”) leverage ratio, a capital buffer, a proposal to deal with pro-cyclicality through dynamic provisioning based on expected losses and liquidity and stable funding ratios. However, the paper shows that Basel risk weighting and the use of internal bank models for determining them leads to systematic regulatory arbitrage that undermines its effectiveness. Empirical evidence about the determinants of the riskiness of a bank (measured in this study by the Distance-to-Default) shows that a simple leverage ratio vastly outperforms the Basel Tier 1 ratio. Furthermore, business model features (after controlling for macro factors) have a huge impact. Derivatives origination, prime broking, etc., carry vastly different risks to core deposit banking. Where such differences are present, it makes little sense to have a one-size-fits-all approach to capital rules. Capital rules make more sense when fundamentally different businesses are separated.
JEL classification: G01, G15, G18, G20, G21, G24, G28
Keywords: Financial crisis, Basel III, derivatives, bank business models, distance-todefault, structural bank separation, banking reform, GSIFI banks

The main hallmarks of the global financial crisis were too-big-to-fail institutions taking on too much risk with other people’s money while gains were privatised and losses socialised. It is shown that banks need little capital in calm periods, but in a crisis they need too much – there is no reasonable ex-ante capital rule for large systemically important financial institutions that will make them safe. The bank regulators paradox is that large complex and interconnected banks need very little capital in the good times, but they can never have enough in an extreme crisis. Separation is required to deal with this problem, which derives mainly from counterparty risk. The study suggests banks should be considered for separation into a ring-fenced non-operating holding company (NOHC) structure with ring-fencing when they pass a key allowable threshold for the gross market value (GMV) of derivatives, a case which is reinforced if the bank has high wholesale funding and low levels of liquid trading assets. The pricing of derivatives and repos would become more commensurate with the risks if the NOHC proposal were to be pursued as a unifying strategy for the different national approaches. Most of the objections to this structure are summarised and rebutted. Other national proposals for separation in Switzerland, the Volcker rule, the Vickers rule, and the Liikanen proposal are argued to be inferior to the ring-fenced NOHC proposal, on the grounds that empirical evidence about what matters for a safe business model is not taken properly into account.
JEL classification: G01, G15, G18, G20, G21, G24, G28
Keywords: Financial crisis, derivatives, bank business models, distance-to-default, structural bank separation, banking reform, GSIFI banks

Banks have been lowering their high pre-crisis leverage levels and are preparing for stricter regulatory capital requirements, and in the process have been reducing their lending. With the banking sector expected to shrink considerably, other actors, especially institutional investors, and new forms of financial intermediation will have to meet the credit needs of the economy. This may not only require enhancing and enlarging the perimeter of regulatory oversight, but may also need policy incentives to encourage new forms of market based lending, especially as it concerns financing long-term investment, including infrastructure, and SMEs. This was the background for the discussions at the April 2012 OECD Financial Roundtable that this note summarises. On the current outlook, participants agreed that recent policy actions in Europe have had a positive impact but more and longer-term policy actions will be needed to restore confidence among market participants and set the basis for recovery. Deleveraging is necessary but only about half-way completed. Regulatory reforms should support this process in a balanced way, avoid unintended consequences and help the transition towards increased non-bank intermediation by not imposing bank-like regulation on, e.g., insurance companies and hedge funds. Securitisation should be revitalised – perhaps with some (initial) government and regulatory support – to close the bank lending gap, especially for SME lending. Covered bonds can contribute in this, too, but their benefits may be limited, i.a. due to asset encumbrance. Mezzanine financing instruments could be useful for SME financing, and informal forms of equity financing could help small dynamic start-up companies.

Banks are still dealing with historic losses buried in their balance sheets. As a result, the US economy is picking up only modestly and Europe is sinking further into recession, despite unprecedented low interest rates and policies to compress the term premium. The aim of this study is to explore the business activities of banks, with a special focus on their lending behaviour, and its responsiveness to unconventional monetary policy. The paper shows that deleveraging has been mainly via mark-to-market assets falling in value, and policy is now serving to reflate these assets without a strong impact on lending. A panel regression study shows that GSIFI banks are least responsive to policy. Non-GSIFI banks respond to the lending rate spread to cash rates, the spread between lending rates and the alternative investment in government bonds, and the distance-to-default (the banks solvency). The paper shows that better lending in the USA is a result of safer banks and a better spread to government bonds – yields on the latter are too attractive relative to lending rates in Europe. Finally, the paper comments on the problem of using cyclical tools to address structural problems in banks, and suggests which alternative policies would better facilitate a financial system more aligned with lending, trust and stability and less towards high-risk activities and leverage via complex products.

JEL Classification: E50, E51, E52, E58, G20, G21, G24, G28.
Keywords: Bank Lending, Bank business model, deleveraging, structural policy, unconventional monetary policy, distance to default, spreads, bank separation, GSIFI.

This paper examines the state of the Russian banking sector in 2004 and assesses the most important reform initiatives of the last two years, including deposit insurance legislation, a major reform of the framework for prudential supervision, steps to increase transparency in the sector, and measures to facilitate the development of specific banking activities. The overall conclusion that emerges from this analysis is that the Russian authorities’ approach to banking reform is to be commended. The design of the reform strategy reflects an awareness of the need for a ‘good fit’ between its major elements, and the main lines of the reform address some of the principal problems of the sector. The major lacuna in the Russian bank reform strategy concerns the future of state-owned banks. Despite a long-standing official commitment to reducing the role of the state – and of the Bank of Russia in particular – in the ownership of credit institutions, there is still a need for a much more ...

The current crisis with its on-going banking sector problems has brought to the fore various cases of financial fraud and banking scandals that have additionally undermined the already low confidence in the sector. This has raised concerns about structural flaws in the way banks operate and are being regulated and supervised. Restoring investor confidence may require new approaches to redesign the incentives, rules and regulations for the financial sector. This was the backdrop for the discussions at the October 2012 OECD Financial Roundtable that this article summarises. Topics covered the current outlook and risks for banks as well as banking business models, ethics and approaches towards risks. Participants pointed out that, while downsizing and adjusting their business models, banks had already made improvements in their risk management. At the same time, the now observed renationalisation of assets could worsen the situation particularly in the European periphery. This could be attenuated by a European Banking Union that would also help to break the detrimental link between banks and sovereigns. As banks are deleveraging, non-banks are substituting for part of the reduced bank lending, but to do so would need regulatory support – while the shadow banking sector more generally will come under closer regulatory and supervisory scrutiny. Consumer groups in particular regard financial consumer protection as important to help improve the social value of financial activities that had often been unproductive, if not destructive. Bank representatives opposed regulatory separation of bank business on the grounds that it is insufficient to address problems of risk taking and control. Finally, it was pointed out that regulatory reforms need to be targeted and harness market forces by balancing penalties and rewards. Governance of regulation should also be enhanced, and regulation should be proactive and be complemented by strong macro and micro-supervision. Co-ordinating reforms should ensure a level playing field, but a one-size-fits-all approach should be avoided.

Private capital movements have risen in recent decades, and bank flows have been part of this story. Some empirical studies have analysed the political drivers of private international liquidity, but paradoxically very few have looked at the political economy of bank flows. Even less research exists on the role of politics in explaining cross-border banking movements towards emerging democracies. The present study links compiled indicators on democracy, policy uncertainty and political stability to international bank lending flows from data developed by the BIS. It provides an empirical investigation of the political economy of cross-border bank flows to emerging markets and tries to answer two questions. Do bankers tend to prefer emerging democracies? Do they reward democratic transitions as well as policy and political stability? One of the major findings is that politics do matter, and international banks tend to have political preferences; annual growth in bank flows usually booms in the three years following a democratic transition, especially in Latin America.
Over the past decade we have witnessed a double convergence. Aid donors have developed a growing interest in the private sector while private banks have set about creating corporate social responsibility programs, sustainable lending and microfinance programmes. As a consequence, the dialogue between private banks and aid donors has been intensifying, opening new avenues for collaboration. The aim of this paper is to map the potential synergies between private banks and aid donors. A survey of private bank lending towards developing countries is undertaken in order to identify the private banks most active in those economies and provide an analytical tool to help identify the scope for public and private partnerships. We find an international division of labour in bank lending: within the developing world, banks from OECD countries tend to focus their credit on specific regions and countries. This mapping of private bank lending also allows us to pinpoint concrete examples of best practices in private bank and financial actors/aid donors collaborations. We follow by discussing some of the more important cases in the field, and conclude with the potential implications for improved partnerships between private banks and donor organisations.
A large, untapped reservoir of potential partnerships between private financial institutions (banks, asset managers, private equity firms, etc.) and aid donors remains to be fully exploited. Banks, private equity and asset management firms are important parts of a broad set of private actors in the field. Private financial institutions take increasingly into account variables other than financial ones to assess their investment decisions around the world. The OECD Global Forum on Development could host a market place for ideas for improving and promoting donor-private financial institutions partnerships: an Innovation Laboratory on Development Finance. An OECD Development Finance Award hosted by the OECD Global Forum on Development should be created
Slovenia is facing the legacy of a boom-bust cycle that has been compounded by weak corporate governance of state-owned banks. The levels of non-performing loans and capital adequacy ratios compare poorly in international perspective and may deteriorate further, which could require significant bank recapitalisation. Updated bottom-up (i.e. loan by loan) stress tests are needed to evaluate the extent of the problems, as the situation has deteriorated rapidly since a similar exercise was done for the two main stateowned banks in mid-2012. To foster the credibility of the new tests, the main results and underlying assumptions should be made public. The creation of the Bank Asset Management Company (BAMC) should allow recognition of problems by ring-fencing impaired assets, which would create conditions for an orderly resolution of non-viable banks and a rapid privatisation of viable banks. To that end, the process of asset transfer and their management has to be transparent and isolated from political influences by ensuring full independence of the BAMC. To achieve smooth deleveraging of the non-financial sector, viable but distressed enterprises should be restructured while insolvent firms should be swiftly liquidated. The main challenge is to improve inefficient insolvency procedures that are too long and result in low recovery rates. Development of equity markets can also facilitate smoother corporate deleveraging by facilitating equity raising through privatisation and entry of foreign investors. Finally, to prevent future crises, banking supervision should be enhanced further. This Working Paper relates to the 2013 OECD Economic Review of Slovenia (http://www.oecd.org/eco/surveys/slovenia-2013.htm).
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