Financial Sector Governance Research Articles

Policy Reform in Indonesia and the Asian Development Bank’s Financial Sector Governance Reforms Program Loan 

Policy Reform in Indonesia and the Asian Development Bank’s Financial Sector Governance Reforms Program Loan 

Financial Literacy in Russia: Problems and Tendencies of Development

The article is devoted to a comprehensive study of financial literacy in Russia at present time. The purpose of the study is to consider the problems and tendencies to improve financial literacy in Russia. Financial literacy in combination with financial education and adequate financial behavior of the population allow to make well-considered decisions to achieve financial well-being of the citizens and economic welfare of the country. Poor financial literacy results in making unreasonable decisions that leads to decline of public confidence in financial institutions, accumulation of debts, exposure to risks of fraud from the providers of financial services. The low level of financial literacy hinders the development of the state economy, weakens the effectiveness of financial sector governance, limits the investment that determine the opportunities of economic growth of the country. In this context the study is essential. The article considers the tendencies of development of financial literacy. The author comes to the conclusion that adequate financial behavior of the population (making reasonable decisions, balancing income with potential risks from acquiring financial products) is less vulnerable to fraud, encourages the providers of financial services to create new products of improved quality and promote competition and has a positive impact (although indirectly) on investment and economic situation in the country. In the course of research, the author used general scientific methods: analysis and synthesis, induction and deduction and system approach. The obtained results can be used as recommendations to enhance the financial literacy of the country population.

The Impact of Brexit on EU Financial Sector Governance

The Impact of Brexit on EU Financial Sector Governance

Republic of Moldova

This paper presents 2019 Article IV Consultation with the Republic of Moldova and its Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements. Moldova’s economic growth remained solid in the first three quarters of 2019, with output expanding nearly 5 percent, supported by strong domestic demand. The three-year program has been broadly successful in achieving its objectives. Comprehensive reforms have rehabilitated the banking system and strengthened financial sector governance, entrenching macrofinancial stability. Prudent and well-coordinated policies are needed to safeguard the progress achieved. Decisive governance and institutional reforms are necessary for faster, sustainable, and inclusive growth. Safeguarding central bank independence is a priority. The inflation-targeting (IT) regime remains appropriate, but additional efforts are needed to improve policy credibility, promote exchange rate flexibility, and disincentivize foreign currency intermediation. Widespread governance and institutional vulnerabilities are major impediments to accelerating income convergence. Addressing these could have significant growth dividends through faster capital accumulation, reduced labor and human capital headwinds from emigration, and higher productivity.

Get Your Money’s Worth from Investment Advice

This special issue aims to examine whether there is an enduring politicization in the European Union (EU) “Better Regulation” agenda despite the emphasis on neutral evidence-based policy making. Our article addresses this overarching research question by focusing on the use of stakeholder consultations in the case of financial sector governance, particularly, the amended Markets in Financial Instruments Directive (MiFID II). We show that calibrating key provisions in MiFID II, such as those concerning knowledge and expertise, is not a simple exercise in rational problem definition and policy design. The provisions examined in this article have important repercussions for financial sector firms’ business strategies and operations. Thus, investment firms, banks, training institutes and public organizations have mobilized and actively sought to assert their views on the appropriate requirements for professional knowledge and experience in MiFID II. We found that, following the stakeholder consultation, the European Securities and Markets Authority (ESMA) opted for a minimum harmonization approach at the EU level. At the same time, ESMA also supported giving the respective national competent authorities sufficient remit to issue additional requirements in accordance with national laws and regulatory practices. Our article demonstrates that while public consultations provide rich evidence for the policy making process, they also contribute to the lasting politicization of regulatory decisions.

Becoming a Powerful Regulator: The European Securities and Markets Authority (ESMA) in European Financial Sector Governance

Originating from a networked committee of national supervisory authorities with limited decision-making powers, the European Securities and Markets Authority (ESMA) has become a prominent regulator in European financial sector governance since 2008. It is the single supervisor of credit rating agencies and trade repositories operating in the EU and has recently exercised its new powers to impose fines on firms violating the EU rules. ESMA has both decision-making and information gathering powers. It decides upon important binding technical standards in securities trading and plays a crucial role in the harmonisation of national practices across the EU through issuing guidelines, disseminating best practices and conducting peer reviews. What explains this unparalleled transfer of powers to the supranational level in European financial sector governance? This paper argues that the succession of crises affecting the EU’s financial and economic order since 2008 created a momentum for centralisation of governance, operationalised in terms of the creation of new EU bodies and transfer of powers and competences from the member states to the EU level. Furthermore, as a consequence of a series of EU legislative reforms since 2011, ESMA has received new responsibilities and powers to ensure harmonised rule application across the EU.

Examining agency governance in the European Union financial sector – a case-study of the European Securities and Markets Authority

Ever since the outset of the financial crisis of 2009, agencies have emerged as key actors of European Union (EU) financial sector governance. As an organisational form that can be insulated from national political pressures, and committed to the Union interest, agencies proliferated in the financial sector ushering the agencification trend in finance. In this sense, the European Securities and Markets Authority (ESMA) – as part of the European Supervisory Authorities – practically embodies this trend. ESMA presents a radical shift in financial markets’ governance due to the nature of its soft law regulations and the direct impact it exerts on addressees’ behaviour in emergency circumstances. But ESMA’s success in optimising financial sector governance largely depends on its legitimacy, which is centred on independence. At the same time independence demands wider participation and inclusiveness of the decision-making process. This is not easy to achieve in a complex system with multiple stakeholders as is the governance of the EU financial sector (e.g., EU institutions, national actors, private sector). This paper examines ESMA’s interinstitutional relations and independence in light of publicly voiced criticism. We find that ESMA’s main executive bodies are still susceptible to influences by Member States as well as EU institutions (i.e., Commission), which undermines its operational independence.

Financial Inclusion and Development in the CEMAC

This paper examines financial inclusion and development in the CEMAC. We explore the level of financial inclusion in the CEMAC through a benchmarking exercise.We construct a measure of financial development gap and analyze its determinants. Using panel data regressions, we find that inflation, income, and natural resources explain most of the financial development level but that better financial sector governance and stronger economic governance are positively associated with financial sector development. Richer and poorer countries can be equally far from their expected financial development levels. Finally, we use a benchmarking exercise to identify countries that have successfully reduced the financial development gap and propose policy measures that CEMAC countries could use to boost financial inclusion.

Banking union under construction: The impact of foreign ownership and domestic bank internationalization on European Union member-states’ regulatory preferences in banking supervision

ABSTRACTWhat is the optimal scope of regulatory harmonization in European financial sector governance? I argue that the levels of foreign ownership and domestic bank internationalization are important determinants of the extent to which governments are prepared to endorse European solutions in banking supervision or prefer national ones. I test two hypotheses about the impact of foreign ownership and domestic bank internationalization on regulatory preferences. This article shows that being a host jurisdiction to foreign financial institutions constrains states’ ability to steer credit flows and tackle perceived threats to national financial stability. As a consequence, decision-makers seek to preserve some national regulatory autonomy. Especially during economic downturns, national supervisory authorities have strong incentives to pursue policies that minimize losses for domestic stakeholders and shift burdens onto foreign ones.

‘Development’ and Global Governance: The World Bank, Financial Sector Reform and the ‘Will To Govern’

Despite the proliferation of literature on ‘global governance’, relatively little attention has been paid to the role of ‘development’ agencies in the construction of regimes of global governance. This article presents an empirical study centred on the role of the World Bank in financial sector governance. The evolution of World Bank policies and practices in this area demonstrates how the World Bank has become an important instrument in the construction of regimes of global governance. This article concludes with some reflections on what this case suggests about how we should explain the emergence of regimes of global governance, and what the World Bank's financial sector reform activities mean for the relationship between development and global governance.