Mr. Fabian Valencia, Richard Varghese, Weijia Yao, and Juan Yepez
The policy response to the COVID-19 shock included regulatory easing across many jurisdictions to facilitate the flow of credit to the economy and mitigate a further ampli-fication of the shock through tighter financial conditions. Using an intraday event study,this paper examines how stock prices—a key driver in financial conditions—reacted to regulatory easing announcements in a sample of 18 advanced economies and 8 emerging markets. The paper finds that overall, regulatory easing announcements contributed to looser financial conditions, but effects varied across sectors and tools. Financial regulatory easing led to lower valuations for financial sector stocks, and higher valuations for non-financial sector stocks, particularly for industries that are more dependent on bank financing. Furthermore, valuations declined and financial conditions tightened following announcements related to easier bank capital regulation while equity valuation rose and financial conditions loosened after those about liquidity regulation. Effects from non-regulatory financial measures appear to be generally more muted.
This Selected Issues paper examines whether the recent slowdown in private sector credit growth in Cabo Verde is demand or supply driven. Although in the late 2000s, demand factors have been the main drivers in Cabo Verde’s credit market, supply dynamics’ role has increased in recent years. For Cabo Verde to promote private sector-led growth and sustainable economic development, reforms aiming at strengthening both credit demand and supply will be essential. These include improving the business environment for the private sector as well as strengthening the financial sector by ensuring prudent banking supervision and an effective resolution of the nonperforming loan overhang.
Many studies have highlighted how failures of public corporations (otherwise known as state-owned enterprises) can result in huge economic and fiscal costs. To contain the risks associated with these costs, an effective regime for the financial supervision and oversight of public corporations should be put in place. This note discusses the legal, institutional, and procedural arrangements that governments need to oversee the financial operations of their public corporations, ensure accountability for their performance, and manage the fiscal risks they present. In particular, it recommends that governments should focus their surveillance on public corporations that are large in relation to the economy, create fiscal risks, are not profitable, are unstable financially, or are heavily dependent on government subsidies or guarantees.