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Business and Economics > Banks and Banking

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Cover Staff Discussion Notes
Rising Corporate Market Power: Emerging Policy Issues
Ms. Wenjie Chen
,
Mr. Federico J Diez
,
Mr. Romain A Duval
,
Philipp Engler
,
Jiayue Fan
,
Chiara Maggi
,
Ms. Marina Mendes Tavares
,
Mr. Daniel A Schwarz
,
Mr. Ippei Shibata
, and
Carolina Villegas-Sánchez
Corporate market power has risen in recent decades, and new estimates in this note suggest that the likely wave of small and medium-sized enterprise bankruptcies from the ongoing pandemic will further strengthen market concentration. Whether and how policymakers should address this issue is hotly debated. This note provides new evidence on the policy relevance of rising market power and highlights possible implications for the design of competition policy frameworks and macroeconomic policies.
Keywords:
Market power; business dynamism; Mergers and acquisitions; competition policy; digital economy; monetary policy; acquiring firm; competition authorities; concentration ratio; analysis point; high-markup firm; growth rates decrease; labor markdown; competition authority; representative firm; computation firm; market concentration; price markup; Competition; Labor markets; Central bank policy rate; Global; market power entrenchment; C. market power; market power increase; B. market power; Eastern Europe
Cover Staff Discussion Notes
A Capital Market Union for Europe
Mr. Ashok Vir Bhatia
,
Ms. Srobona Mitra
,
Mr. Shekhar Aiyar
,
Luiza Antoun de Almeida
,
Cristina Cuervo
,
Mr. Andre O Santos
, and
Tryggvi Gudmundsson
This note weighs the merits of a capital market union (CMU) for Europe, identifies major obstacles in its path, and recommends a set of carefully targeted policy actions. European capital markets are relatively small, resulting in strong bank-dependence, and are split sharply along national lines. Results include an uneven playing field in terms of corporate funding costs, the rationing out of collateral-constrained firms, and limited shock absorption. The benefits of integration center on expanding financial choice, ultimately to support capital formation and resilience. Capital market development and integration would support a healthy diversity in European finance. Proceeding methodically, the note identifies three key barriers to greater capital market integration in Europe: transparency, regulatory quality, and insolvency practices. Based on these findings, the note urges three policy priorities, focused on the three barriers. There is no roadblock—such steps should prove feasible without a new grand bargain.
Keywords:
SDN; EU counterparty; EU capital market practitioner; euro area; EU capital market rule; EU treaty; EU venture capital funds; Capital market union; financial integration; bilateral portfolio flows; monetary union; investment firm; funding cost; growth performance; private equity; equity valuation; capital market market fragmentation; nonfinancial firm; company information; Capital markets; Securities; Stocks; Mutual funds; Solvency; Europe; Global
Cover Staff Discussion Notes
Casting Light on Central Bank Digital Currencies
Mr. Tommaso Mancini Griffoli
,
Mr. Maria Soledad Martinez Peria
,
Mr. Itai Agur
,
Mr. Anil Ari
,
Mr. John Kiff
,
Ms. Adina Popescu
, and
Ms. Celine Rochon
Digitalization is reshaping economic activity, shrinking the role of cash, and spurring new digital forms of money. Central banks have been pondering wheter and how to adapt. One possibility is central bank digital currency (CBDC)-- a widely accessible digital form of fiat money that could be legal tender. This discussion note proposes a conceptual framework to assess the case for CBDC adoption from the perspective of users and central banks. It discusses possible CBDC designs, and explores potential benefits and costs, with a focus on the impact on monetary policy, financial stability, and integrity. This note also surveys research and pilot studies on CBDC by central banks around the world.
Keywords:
SDN; ease liquidity pressure; CBDC token; CBDC infrastructure; rival CBDC; store of value; unit of account; money; central bank digital currencies; monetary policy; CBDC adoption; CBDC development; market power; fiat money; transaction costs; due diligence; Currencies; Bank deposits; Commercial banks; Central bank policy rate; Caribbean
Cover Staff Discussion Notes
Women in Finance: A Case for Closing Gaps
Ms. Ratna Sahay
and
Mr. Martin Cihak
Women are underrepresented at all levels of the global financial system, from depositors and borrowers to bank board members and regulators. A new study at the IMF finds that greater inclusion of women as users, providers, and regulators of financial services would have benefits beyond addressing gender inequality. Narrowing the gender gap would foster greater stability in the banking system and enhance economic growth. It could also contribute to more effective monetary and fiscal policy. New evidence suggests that greater access for women to and use of accounts for financial transactions, savings, and insurance can have both economic and societal benefits. For example, women merchants who opened a basic bank account tend to invest more in their businesses, while female-headed households often spend more on education after opening a savings account. More inclusive financial systems in turn can magnify the effectiveness of fiscal and monetary policies by broadening financial markets and the tax base. The paper also studies the large gaps between the representation of men and women in leadership positions in banks and in banking-supervision agencies worldwide. It finds that, shockingly, women accounted for less than 2 percent of financial institutions’ chief executive officers and less than 20 percent of executive board members. The analysis suggests that, controlling for relevant bank- and country-specific factors, the presence of women as well as a higher share of women on bank boards appears associated with greater financial resilience. This study also finds that a higher share of women on boards of banking-supervision agencies is associated with greater bank stability. This evidence strengthens the case for closing the gender gaps in leadership positions in finance.
Keywords:
SDN; bank stability; bank board; share of woman; stability outcome; leadership role; gender; banking; financial inclusion; financial stability; economic growth; bank supervision; boards of directors; Women; Bank soundness; Gender inequality; Global
Cover Staff Discussion Notes
Trade-offs in Bank Resolution
Mr. Giovanni Dell'Ariccia
,
Mr. Maria Soledad Martinez Peria
,
Ms. Deniz O Igan
,
Elsie Addo Awadzi
,
Mr. Marc C Dobler
, and
Mr. Damiano Sandri
This SDN revisits the debate on bank resolution regimes, first by presenting a simple model of bank insolvency that transparently describes the trade-off involved between bail-outs, bail-ins, and larger capital buffers. The note then looks for empirical evidence to assess the moral hazard consequences of bail-outs and the systemic spillovers from bail-ins.
Keywords:
SDN; bail in; bail-in power; central bank; public funds; holding company; Bank resolution; Spillovers; Financial regulation; resolution regime; bank stakeholder; recognition clause; bail-in process; bail-in regime; equity capital; bank equity; EU bail-in event; bail-out expectation; Bank resolution framework; Moral hazard; Financial sector stability; Global
Cover Staff Discussion Notes
The Economic Impact of Conflicts and the Refugee Crisis in the Middle East and North Africa
Mr. Bjoern Rother
,
Ms. Gaelle Pierre
,
Davide Lombardo
,
Risto Herrala
,
Ms. Priscilla Toffano
,
Mr. Erik Roos
,
Mr. Allan G Auclair
, and
Ms. Karina Manasseh
In recent decades, the Middle East and North Africa region (MENA) has experienced more frequent and severe conflicts than in any other region of the world, exacting a devastating human toll. The region now faces unprecedented challenges, including the emergence of violent non-state actors, significant destruction, and a refugee crisis bigger than any since World War II. This paper raises awareness of the economic costs of conflicts on the countries directly involved and on their neighbors. It argues that appropriate macroeconomic policies can help mitigate the impact of conflicts in the short term, and that fostering higher and more inclusive growth can help address some of the root causes of conflicts over the long term. The paper also highlights the crucial role of external partners, including the IMF, in helping MENA countries tackle these challenges.
Keywords:
SDN; conflict country; refugee crisis; central bank; economic activity; country authorities; Middle East and North Africa; conflicts; refugees; macroeconomic policy; economic spillovers; post-conflict reconstruction; international community; MENA region; MENA country; physical capital; financial support; IMF staff calculation; growth potential; MENA conflict country; Labor markets; Infrastructure; Inflation; Middle East; North Africa; Global; East Africa; Europe
Cover Staff Discussion Notes
The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action
Ms. Michaela Erbenova
,
Ms. Yan Liu
,
Mr. Nadim Kyriakos-Saad
,
Aledjandro Lopez Mejia
,
Jose Giancarlo Gasha
,
Mr. Emmanuel Mathias
,
Mr. Mohamed Norat
, and
Ms. Yasmin Almeida
This paper focuses on the withdrawal of correspondent banking relationships (CBRs) in some jurisdictions post-global financial crisis. It describes existing evidence and consequences of the withdrawal of CBRs and explores drivers of this phenomenon drawing on recent surveys and select country information. While the withdrawal of CBRs has reached a critical level in some affected countries, which can have a systemic impact if unaddressed, macroeconomic consequences have not been identified so far at a global level. The paper presents responses from the international community to address this phenomenon, and explains the role that the IMF has been playing in this global effort, especially with regards to supporting member countries in the context of surveillance and technical assistance, facilitating dialogue among stakeholders, and encouraging data gathering efforts. The paper concludes by suggesting policy responses by public and private sector stakeholders needed to further mitigate potential negative impacts that could undermine financial stability, inclusion, growth and development goals.
Keywords:
SDN; due diligence; respondent bank; withdrawal of CBR; BNP Paribas; risk assessment; Correspondent Banking; De-risking; correspondent and respondent banks; remittances; AML/CFT; banking supervision and regulation; Money Transfer Operators; Money or Value Transfer Services; Technical Assistance; Payment systems; Trade Finance; bank customer; correspondent relationship; Anti-money laundering and combating the financing of terrorism (AML/CFT); Money laundering; Global; Australia and New Zealand; Caribbean
Cover Staff Discussion Notes
Benefits and Costs of Bank Capital
Jihad Dagher
,
Mr. Giovanni Dell'Ariccia
,
Mr. Luc Laeven
,
Mr. Lev Ratnovski
, and
Mr. Hui Tong
The appropriate level of bank capital and, more generally, a bank’s capacity to absorb losses, has been at the core of the post-crisis policy debate. This paper contributes to the debate by focusing on how much capital would have been needed to avoid imposing losses on bank creditors or resorting to public recapitalizations of banks in past banking crises. The paper also looks at the welfare costs of tighter capital regulation by reviewing the evidence on its potential impact on bank credit and lending rates. Its findings broadly support the range of loss absorbency suggested by the Financial Stability Board (FSB) and the Basel Committee for systemically important banks.
Keywords:
SDN; bank capital; capital requirement; bank creditor; crisis bank recapitalization; bank leverage; bank loss; recapitalization injection; TLAC; Financial Regulation; bank risk; Capital adequacy requirements; Banking crises; Bank credit; Nonperforming loans; Global; Europe
Cover Staff Discussion Notes
Benefits and Costs of Bank Capital
Jihad Dagher
,
Mr. Giovanni Dell'Ariccia
,
Mr. Luc Laeven
,
Mr. Lev Ratnovski
, and
Mr. Hui Tong
The appropriate level of bank capital and, more generally, a bank’s capacity to absorb losses, has been at the core of the post-crisis policy debate. This paper contributes to the debate by focusing on how much capital would have been needed to avoid imposing losses on bank creditors or resorting to public recapitalizations of banks in past banking crises. The paper also looks at the welfare costs of tighter capital regulation by reviewing the evidence on its potential impact on bank credit and lending rates. Its findings broadly support the range of loss absorbency suggested by the Financial Stability Board (FSB) and the Basel Committee for systemically important banks.
Keywords:
SDN; bank capital; capital requirement; bank creditor; crisis bank recapitalization; bank leverage; bank loss; recapitalization injection
Cover Staff Discussion Notes
Virtual Currencies and Beyond: Initial Considerations
Mr. Dong He
,
Mr. Karl F Habermeier
,
Mr. Ross B Leckow
,
Mr. V. Haksar
,
Ms. Yasmin Almeida
,
Ms. Mikari Kashima
,
Mr. Nadim Kyriakos-Saad
,
Ms. Hiroko Oura
,
Tahsin Saadi Sedik
,
Natalia Stetsenko
, and
Ms. Concha Verdugo Yepes
New technologies are driving transformational changes in the global financial system. Virtual currencies (VCs) and the underlying distributed ledger systems are among these. VCs offer many potential benefits, but also considerable risks. VCs could raise efficiency and in the long run strengthen financial inclusion. At the same time, VCs could be potential vehicles for money laundering, terrorist financing, tax evasion and fraud. While risks to the conduct of monetary policy seem less likely to arise at this stage given the very small scale of VCs, risks to financial stability may eventually emerge as the new technologies become more widely used. National authorities have begun to address these challenges and will need to calibrate regulation in a manner that appropriately addresses the risks without stifling innovation. As experience is gained, international standards and best practices could be considered to provide guidance on the most appropriate regulatory responses in different fields, thereby promoting harmonization and cooperation across jurisdictions.
Keywords:
SDN; VC scheme; unit of account; fiat currency; market participant; financial system; Virtual currencies; cryptocurrencies; payment technology; distributed ledger; blockchain; financial innovation; financial efficiency; financial inclusion; AML/CFT; consumer protection; tax evasion; exchange controls; capital flows management; financial regulation; financial stability; monetary policy; international cooperation; Currencies; Blockchain and DLT; Anti-money laundering and combating the financing of terrorism (AML/CFT); Global