Design Of Safety Nets Research Articles

An Empirical Investigation into the Effect of Explicit Deposit Insurance and Design on the Liability Structure of Banks

Abstract This paper provides an insight into the behaviour of the liability side of bank balance sheet in response to explicit deposit insurance. It is an empirical investigation into the choice of a rational bank maximizing its bank value in terms of deposit and non-deposit liabilities after the implementation of explicit deposit insurance. The paper tests how banks' liabilities are affected because of the safety net and its design. Banks lower their leverage ratio as a response to the explicit deposit insurance. The paper finds evidence of depositor shifting funds between the types of deposits in the bank as a result of the explicit deposit insurance. It provides evidence of the importance of setting the right coverage in order to prevent the adverse effects that deposit insurance induces. It studies how the safety net design features affect the bank liability structure. The study finds that besides the explicit deposit insurance, the bank liability structure is affected by factors like tax expense, bank size, overheads, and dividend payout.

'One Size Does Not Fit All' Institutional Determinants of Financial Safety Net Effectiveness

The main objective of this study is to identify both similarities and differences among seemingly homogenous countries (OECD) in respect to their safety net design and a supervisory role played by central banks. The goal is achieved using an extensive data set, describing financial supervisory institutions between 2000-2013, hence including recent modifications in response to global financial crisis. The data show the existence of similar supervisory standards in both crisis- and non-crisis countries. Whether it is a presence of a single supervisory authority, allocation of macroprudential responsibilities in a country, or implementing capital adequacy requirements, while working well in certain countries, did not make others immune to a crisis. At the same time, data show that non-crisis countries implemented stricter rules than those in crisis-countries, and that this process started way before the burst of Global Financial Crisis. Often, these more rigorous rules were observed in countries with past crisis experience, indicating an importance of learning mechanism. With empirical analysis, we prove that certain basic safety net elements (obligatory reserve requirements of sufficient coverage of deposit insurance scheme), as well as high level of central bank financial transparency are negatively correlated with the speed of credit growth. Based on results and discussion on previous empirical analyses we give recommendations for institutions involved in the financial safety net.

Safety Nets and Food Programs in Asia: A Comparative Perspective

Many countries adopted safety net programs to deal with the food crisis of 2008. However, such programs are often beset with targeting errors, inefficiencies, and fraud. Despite this, there is no systematic comparative analysis of safety nets. The objective of this paper is to identify generic issues germane to safety net design and their role in determining success. We examine the performance of safety net programs in Bangladesh, India, Indonesia, and the Philippines in terms of people covered, food distributed, and income support provided. These countries spend 1%-3% of their gross domestic product on safety nets — small in relation to developing and industrial economies. We find an across-the-board failure of targeting in the four countries. The reasons range from elite capture, incorrect identification of the poor, their lack of access, barriers to participation, and regional allocation biases. Even if perfect targeting could cover the entire target group and eliminate leakage to non-target groups, the target groups may not receive the full subsidy due to illegal diversions, operational inefficiencies, and excess costs of public agencies. The success of the safety nets will depend on increasing the participation of the poor and minimizing program waste. Computerization of supply chains to track grain supplies can reduce diversion, and switching from in-kind to cash transfers can cut administrative and other costs of physical handling. The mix of tools would depend upon the economic, political, cultural, and social backgrounds of the country, and its administrative and fiscal capabilities to provide safety net programs.

Gender Dynamics of the Grenada Survey of Living Conditions (SLC) 1998

The impetus towards accumulating and analyzing data disaggregated by sex has acquired a steady momentum as governments become more apprised of gender related issues. Indeed, there are several reasons as to why gender issues must be incorporated with the design of safety nets. According to the World Bank’s website, some of these reasons are as follows: • Men and women may be vulnerable to or exposed to different types of risks. •There is evidence that women are often more disadvantaged than men and therefore should benefit more from assistance programs. •Programs that take into account the gender dimension of transfer programs may be desirable because of added benefits to other members in the household. •Finally, this approach might help to increase the impact of safety nets programs on poverty and human development outcomes.It is, however, important to note that an examination of vulnerability and potential gender-based incentives and disincentives of such programs should be undergone before taking major decisions to implement them. Nonetheless, there exists several ways in which to combine gender considerations with safety nets. These include: •Designing specific projects for women, like microfinance programs and promotion of day care centers. •Enhancing the direct or indirect (e.g. distributing resources in kind) targeting of existing programs towards women. Evidence indicate that putting more resources under women’s control has a positive impact on in household and child welfare, since women invest more in children, particularly for nutrition and health. For this reason all of the Latin American conditional cash transfer programs pay benefits in the name of the mother in the household, even though targeting is done on overall family welfare levels. •Ensuring that projects accommodate the needs of participating women for example by ensuring that transactions for eligibility and receipt of benefit in food or cash transfer programs takes place at convenient hours and in culturally acceptable conditions. It has been shown that provision of creches can enhance women's participation in public works programs.Collectively, it is of utmost important to realize that safety nets alone cannot adequately improve the life of poor women and that other policies are also important for reducing their vulnerability. These can include laws and regulations that protect women and their assets in case of divorce and abandonment.

Thought for Food: The Challenges of Coping with Soaring Food Prices

World food commodities prices increased 130 percent from January 2002 to July 2008. Individual agricultural commodities show even more pronounced increases: corn, wheat, rice and soybeans rose by 190, 162, 318 and 246 percent, respectively. Since July, food commodities prices began to fall. While this decline comes as a relief, prices are likely to stay high in the foreseeable future. Available evidence suggests that the decline in living standards of net consumers caused by higher food prices outweighs the benefits accruing to poor net sellers in the majority of countries that have been analyzed so far. The time to implement measures to help the poor net consumers cope with higher food prices is now. However, too many developing countries lack the instruments, administrative capacity and fiscal space to implement safety nets fast enough and in the required scale. This is one of the most pressing policy challenges that we face. For the poor who are net sellers, governments should seize the opportunity to convert the short-run windfall into longer-term gains. Multilateral financial institutions can play a key role in providing financial resources to countries facing negative terms of trade shocks, technical assistance in the design of safety nets and resources to add fiscal space to countries to fund safety net programs. International organizations can also help countries design the appropriate macroeconomic policy response. This will call for greater flexibility in the menu of policy options traditionally deployed by the Bretton Woods institutions.

Banking crises and the design of safety nets

Governments face conflicting objectives in terms of the provision and design of safety nets for banking systems. Safety nets may reduce market discipline and can thus increase the likelihood of a banking crisis. But safety nets are adopted because of the perceived benefits they will confer in either preventing a weak banking system from spilling over into a full-blown crisis or in enabling the government to handle a crisis more effectively. This paper provides evidence on the effects of government safety nets on both these aspects and discusses implications for policy.