Advanced Search
MyIDEAS: Login to save this paper or follow this series

Financial sector adjustment lending : a mid-course analysis

Contents:

Author Info

  • Cull, Robert J.

Abstract

Nearly 100 countries have experienced bank insolvencies in the past 20 years. Weakness in the financial sectors of many countries is reflected in the size of the insolvencies -in many cases, the cost of bailout exceeded 15 percent of GDP- and the fact that these crises often recur. Because a strong financial sector is important for economic growth, the World Bank has increasingly granted loans with conditions attached to achieve specific financial sector reforms. The Bank often employs financial sector adjustment loans (FSALs) or, in poorer countries, credits (FSACs). FSALs are generally more comprehensive than other types of interventions and tend to concentrate on the reform areas most closely linked to the operations of deposit banks. Since 1990, their main focus has shifted from improving prudential regulations and correcting interest rate distortions to privatizing and recapitalizing banks. The author examines whether 1) initial conditions in a recipient country explain a substantial amount of the variation in intervention outcomes (as measured by post-intervention financial deepening) and 2) whether the changing nature of interventions has had implications for their success. He finds that: 1) the decline in post-intervention performance since 1990 cannot be attributed solely toinitial macroeconomic and financial sector conditions in the recipient country. 2) When initial macroeconomic and financial sector conditions were controlled for, certain types of reform, especially those dealing with prudential regulations, were associated with relatively large increases in the ration of money supply (M2) to GDP. Those dealing with recapitalization have also been relatively successful, especially when they also tackled prudential regulation or banking supervision. Those that focused on supervision did not, on average, substantially outperform those that did not, on average, focus on supervision. And reform focused on bank privatization was associated with much less financial deepening three years after the intervention. 3) In addition to reform aimed at institutional strengthening, the reform environment itself had a substantial impact on intervention outcomes. Financial deepening was positively associated with macroeconomic stability (low inflation) and an initially underdeveloped financial sector. 4) As the Bank's operational directives suggest, some macroeconomic stability is important for the success of financial sector interventions, especialy those that incorporate interest rate liberalization. While it may be best to move more aggressively on financial reform when macroeconomic circumstances are favorable,"visible"reform (such as privatization or interest rate deregulation) should be slowed down rather than abandoned in less fortunate circumstances. By contrast, less visible institution-building efforts should be continued regardless of macroeconomic conditions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2000/02/24/000009265_3971110141341/Rendered/PDF/multi_page.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1804.

as in new window
Length:
Date of creation: 31 Aug 1997
Date of revision:
Handle: RePEc:wbk:wbrwps:1804

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Payment Systems&Infrastructure; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Financial Crisis Management&Restructuring; Economic Theory&Research; Banks&Banking Reform; Financial Crisis Management&Restructuring; Environmental Economics&Policies; Financial Economics;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(2), pages 141-163, September.
  2. Clarke, George R. & Cull, Robert, 1998. "Why privatize? : the case of Argentina's public provincial banks," Policy Research Working Paper Series 1972, The World Bank.
  3. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  4. De Long, J Bradford, 1988. "Productivity Growth, Convergence, and Welfare: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1138-54, December.
  5. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  6. Alex Cukierman & Steven Webb, 1995. "Political Influence on the Central Bank- International Evidence," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 114, Chicago - Center for Study of Economy and State.
  7. Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(3), pages 559-88, August.
  8. King, Robert G. & Levine, Ross & DEC, 1994. "Capital fundamentalism, economic development, and economic growth," Policy Research Working Paper Series 1285, The World Bank.
  9. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 942-63, September.
  10. King, Robert G. & Levine, Ross, 1992. "Financial indicators and growth in a cross section of countries," Policy Research Working Paper Series 819, The World Bank.
  11. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 3-17, Summer.
  12. Bird, Graham, 1996. "Borrowing from the IMF: The policy implications of recent empirical research," World Development, Elsevier, Elsevier, vol. 24(11), pages 1753-1760, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Clarke, George R.G. & Cull, Robert, 1998. "The political economy of privatization : an empirical analysis of bank privatization in Argentina," Policy Research Working Paper Series 1962, The World Bank.
  2. Michael Andrews, 2005. "State-Owned Banks, Stability, Privatization, and Growth," IMF Working Papers 05/10, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1804. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.