1 giuseppe cinquegrana researcher national accounts directorate istat oecd working party - paris, 30...

1

Giuseppe Cinquegrana

ResearcherNational Accounts directorate

IstatOECD Working Party - Paris, 30 November 2010

Debt and net financial wealth:a comparative analysis for some European countries

2

Bank oriented

vs.Market oriented

Analysis on Financial Accounts for some European countries

Model of Financial System

3

• Bank oriented

Gershenkron, 1962

Universal banks have carried out a crucial role in the economic development process in the nineteenth century (see Italy and Germany)

Model of Financial System

4

• Bank oriented

Diamond, 1984, Mayer, 1988, Levine, 1997, 2003,

Financial intermediaries have a fundamental role in overcoming market failures due to the asymmetric information. By monitoring and screening the firms’ projects during many years, banks are able to assess and prevent opportunistic behaviours related to

adverse selection and to moral hazard problems.

Model of Financial System

5

• Market oriented

new view Gurley and Shaw (1955)

Starting from the portfolio risk diversification theory, they identify the crucial role of finance in the risk selection and asset allocation on behalf of the investors. Also the degree of development and of the innovation technology of the economy determines the model of financial system.

Model of Financial System

6

Model of Financial System

• Law finance approach

The relationship between finance and growth has to be analyzed taking into account the different legal

traditions

• Common Law Civil Law

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Common law

• historically oriented to a greater protection of the holders of property rights towards the

government

• public companies and widespread shareholding

• governance conflicts: shareholder / manager

• very liquid financial markets are, in effects, the main protection for shareholders

Market Oriented Financial System

Model of Financial System

8

Civil Law

• lower degree of protection of the private sector • firm ownership more concentrated

• governance conflicts: majority shareholder / minority shareholder

• a bigger cost for the firms to obtain funding directly on the financial market, because of the high risk premium on the invested capital demanded by minority shareholder

Bank Oriented Financial System

Model of Financial System

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• FIR: Financial Interrelation Ratiomeasure of the degree of financial intensity of an economic system

the financial assets of the whole economy

the wealth of the whole economy

Goldsmith’s ratios

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• FIN: Financial Intermediation Ratiomeasure of the degree of financial intermediation of an economic system

the liabilities of the Financial Corporations

the sum of the liabilities of all the other sectors

Goldsmith’s ratios

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• CIR: Credit Intermediation Ratio

(Capelle-Blancard et al., 2006 )measure of the degree of banking intermediation on the whole financial intermediation in an economic system

the loans granted by the Financial Corporations

the sum of the liabilities issued by all the other sectors

Other Financial indicators

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• NFIR: Net Financial Interrelation Ratio

the net financial wealth

Gross Domestic Product at current prices

Other Financial indicators

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• Financial Accounts (ESA95)

European Monetary Union

United Kingdom

• Source:

EUROSTAT, OECD, OFFICE FOR NATIONAL STATISTICS UK

Analysis and data

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• Total Economy S1

• Non Financial Sector S11

• Financial Sector S12

• General Government S13

• Household S14

• Rest of the World S2

• Source:

EUROSTAT, OECD, OFFICE FOR NATIONAL STATISTICS UK

Institutional Sector ESA95

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Financial Interrelation Ratio (%), FIR,by European country

FIR ratio (financial assets S1 / GDP)(Median EMU basis 100)

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008Italy France United Kingdom Spain Germany

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FIN ratio (liabilities S12 / liabilities S11+S13+S14+S2)(Median EMU basis 100)

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008Italy France United Kingdom Spain Germany

Financial Intermediation Ratio (%), FIN,by European country

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CIR ratio (loans S12 / liabilities S11+S13+S14+S2)(Median EMU basis 100)

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008Italy France United Kingdom Spain Germany

Credit Intermediation Ratio (%), CIR,by European country

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NFIR for the Private Non Financial Sector (net financial wealth S11+S14 / GDP)(Median EMU basis 100)

-400

-300

-200

-100

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008

Italy France United Kingdom Spain Germany

Net Financial Interrelation Ratio (%), NFIR,Private Non Financial Sector (S11+S14) by European country

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NFIR for the Households (net financial wealth S14 / GDP)

0

25

50

75

100

125

150

175

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008

Italy France United Kingdom Spain Germany

Net Financial Interrelation Ratio (%), NFIR,Household Sector (S14) by European country

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Financial liabilities on GDP (%) of the whole Non Financial Sector (S11+S13+S14) by European country

Financial liabilities on GDP of the whole non fiancial sector (S11+S13+S14)(Median EMU basis 100)

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008

Italy France United Kingdom Spain Germany

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Financial liabilities on GDP (%) of the Private Non Financial Sector (S11+S14) by European country

Financial liabilities on GDP of the private non fiancial sector (S11+S14)(Median EMU basis 100)

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008

Italy France United Kingdom Spain Germany

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Financial liabilities on financial assets (%)Household Sector (S14) by European country

Financial liabilities on financial assests for Households sector

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008Italy France United Kingdom

Spain Germany Median UEM 11

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Thanks

OECD Working Party - Paris,

30 November 2010