The agenda for financial sector reform in Sub-Saharan Africa Thorsten Beck

Finance matters for growth – also in Africa

Finance is also pro-poor

Africa’s financial systems are small – in relative…

…and absolute terms

Access to Financial Services is limited…

…although there is also variation within the region

Banking is expensive – as can be observed in net interest margins…

… and costly…

.. but still profitable

Banking is also expensive for customers…

…with negative repercussions for access Share of population unable to afford checking account fees South Africa Ghana Madagascar Chile Cameroon Nepal Swaziland Kenya Sierra Leone Uganda Malawi Percent

Documentation requirements are another barrier

Capital markets are even less developed

Hope is in the air…

Finance is more in line with economic development than before

Progress has been widespread (1)

Progress has been widespread (2)

Africa in the current crisis No direct impact  No toxic assets  Little if any household lending  Not as closely integrated Indirect, second-round effects  Parent banks – not as much as feared  Real sector linkages (commodity and non-commodity exporters)  Remittance flows  Higher government financing needs  International capital flows  Parent banks at risk? Not the case  Reforms of regulatory frameworks

Working in a new global environment Globalization has brought many advantages, but also:  Drying up of global capital funds No alternative to globalization in most LICs, but:  More emphasis on domestic resource mobilization  More emphasis on regional integration

Foreign banks across the developing world

Regulatory reform in the North - the downsides of heavy regulatory hand Rent seeking, corruption, political capture Killing off markets – caveat emptor Negative repercussions for access to finance Consumer protection vs. systemic risk  Pyramids vs. derivative markets

Role of government – has the paradigm shifted again? Role of markets vs. government in the current crisis Role of government in crisis resolution vs. permanent role of government in financial sector Activism vs. modernism

Regulatory lessons from the big crisis - from Pittsburgh to Lilongwe Macro-prudential supervision  Do LIC supervisors have the necessary information  Pro-cyclical capital regulation? Benchmark in LICs? Boundaries of regulation  Heavy regulatory hand called for?  Benefits of securitization  Restrictions on certain activities Strengthening prudential regulation  LICs typically more conservative anyway  How much information can LIC supervisors get and process? Role of credit rating agencies  Hmmm…. Role of consumer protection, financial literacy, disclosure

Cooperation for large multi-national banks MoUs??? Colleges of supervisors??  Can we apply Coase theorem?  Incentives!!! Resources!!  The role of IFIs Long: ring-fence, short: branches Contingency planning Old vs. new foreign banks  Cooperation among LICs

Regional integration Unfulfilled potential Over-ambition might be a problem – focus on subregions, different speeds Benefits from technical cooperation Harmonizing regulatory frameworks  Branches instead of subsidiaries  Reap benefits of scale economies  Important: adjust financial safety net accordingly (see problems in Europe) Intra-regional capital account liberalization

Looking beyond stability Even in these times…  Fostering financial development and access is important  In most countries, it is central bank that is natural champion Looking beyond the focus on tax havens and AML/CFT  Risk-based approach to not undermine access to financial services The current crisis underlines the necessity for fundamental reforms in financial infrastructure as period of “cheap money” is over

Over-leveraged or liquid (1)

Over-leveraged or liquid (2)

Financial sector policies in developing countries – looking ahead Financial innovation  Use of technology  Competition from non-banks Trade-off deepening/broadening and stability  One size does not fit all  Take trade-off into account in regulation Focus on clients, less on institutions  Financial service provision  Consumer protection, transparency, over-indebtedness Learn from each other

Who does what? Looking beyond G20  Role for WB to represent non-G20  Complementary role for bilaterals in G20 (DfiD, BMZ,AFD etc.) What kind of assistance?  Look beyond sub-sectoral support  Linking diagnostics (FSAP – new model?) with technical assistance  Move beyond (away?) from international standards  Focus more on big-picture financial sector development policies