1. Contractual Savings and Financial Markets Gregorio Impavido, Alberto R. Musalem, and Thierry Tressel Financial Sector Development Department Financial Sector Vice Presidency The World Bank

2. 2 Definition and Importance of Contractual Savings n Funded pensions plans: accumulation period n Annuities: pensions pay out n Life insurance n Funded unemployment benefits, gratuity, end of service indemnity n Other contingencies - down payment for a house, education, weddings, funerals n Supply long term savings

3. 3 Financial assets of contractual savings, selected countries (% of GDP)

4. 4 Contractual savings and M2 as percentage of financial assets (1996)

5. 5 CONTRACTUAL SAVINGS % OF CAPITAL MARKETS (STOCKS AND BONDS) Comparing Two Years During the 1990s

6. 6 Social and Financial Risk Mitigation Effects n Beneficiaries improve management of longevity, death and other risks n Reduce debtors refinancing risks, including governments, by lengthening the maturity of debts n Reduce pressure on banks to engage in excessive term transformation risks n Reduce enterprise vulnerability to interest rate and demand shocks due to improved financial structure (higher equity/debt ratio)

7. 7 Government long-term to total debt ratio and contractual savings assets, 1996 (% GDP)

8. 8 Banks’ Short Term to Total Loans vs Contractual Savings: Conditional Correlation Regression Line: STL = -6.03 (4.58) * Log(Csfa,%GDP)+37.5 ( R2=0.18)

9. 9 Banks’ Net Interest Margin (NIM) and Contractual Savings: Conditional Correlation Regression Line: NIM = -0.60 (-10.78) * Log(Csfa,%GDP)+1.47 (R2=0.35)

10. 10 Banks’ Credit Risk (Loan Loss Provisions to Total Assets) and Contractual Savings: Conditional Correlation Regression Line: LLTA = -2.8 E-3 (-3.23) * Csfa,%GDP + 0.6 ( R2 = 0.043)

11. 11 Debt-equity ratios of listed companies and contractual savings assets, 1997 (% GDP)

12. 12 Long-term to total debt ratio of listed companies and contractual savings assets, 1997 (% GDP)

13. 13 Firms’ Leverage (TDTE) vs Contractual Savings: Conditional Correlation - Market-based Financial Structure Residual = -1.16 * (CS Fin. Assets, % Sec. Market) (t-stat = -2.47) Pooled reg., 82 obs.

14. 14 Firms’ Leverage (TDTE) vs Contractual Savings: Conditional Correlation - Bank-based Financial Structure Residual = 4.0 * (CS Fin. Assets, % Sec. Market) (t-stat = 2.37) Pooled regression, 74 obs.

15. 15 Firms’ Debt Maturity vs Contractual Savings: Conditional Correlation - Market-based Financial Structure Residual = -0.09 * (CS Fin. Assets, % Sec Mkt) (t-stat = -3.84) Pooled regression, 82 obs.

16. 16 Firms’ Debt Maturity vs Contractual Savings: Conditional Correlation - Bank-based Financial Structure Residual = 0.28 * (CS Fin. Assets, % Sec Mkt) (t-stat = 5.28) Pooled Regression, 74 obs.