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Über dieses Buch

The basic question of this book is what we can learn from empirical as well as theoretical analysis of financial systems, differing cross-sectional and changing structually over time, with respect to the issue of stability of financial systems. Part I of the book deals with stability issues in a globalizing financial world and addresses topics of convergence, domestic policy, financial bubbles, crises and international coordination. Part II is on banking systems. Country specific adoption and restructuring of (universal but also separation) banking systems are key problems for the industrialized economies, while catching-up is of major concern for the economies in transition. Feeble regional economies and subsidized banking is at the heart of the vivid dispute on public sector banking being taken up in Part III. The last Part is devoted to resource-oriented approaches in quantifiying financial development and risk of sovereign default.



Financial Syatems: What can We Learn from the Past?

Financial systems: What can we learn from the past? Introduction to the book

What can we learn from empirical as well as theoretical analysis of financial systems, differing cross-sectionally and changing structurally over time, with respect to the issue of stability of fmancial systems? This is the basic question underlying the contributions to this book.
Alexander Karmann

Financial Stability and Globalization


Evolution of Financial Systems: Convergence Towards Higher or Lower Stability?

Financial systems evolve as different mixes of markets and intermediaries to provide financial services and risk sharing opportunities to households and firms, supplemented with regulations to protect them against systemic risk. The present paper reviews the research on comparative financial systems to discuss their determinants, stability properties and evolution. Although convergence towards a uniform financial system can be excluded, there is a tendency of evolution towards an arm’s length-cum-market-oriented financial system with intermediation by institutional investors and universal banking with harmonized prudential regulation and qualitative supervision. The stability effects depend on the kind of stability aspired, on short-term and long-term relations between efficiency and stability and on the pros and cons of harmonizing regulations on an international scale. In the long run, instability tends to rise.
Doris Neuberger

Effects of Globalization on National Monetary Policy

Globalization is a widely used term, but is in fact rather vague. It refers to the growing economic interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.
Helmut Wagner

Discussion of Helmut Wagner’s “Effects of globalization on national monetary policy”

The increasingly intense debate on globalization is addressing several aspects of the growing interdependence of countries worldwide. Among some of the most urgent questions are the tasks that national monetary policymaking will take and the role of national monetary authorities in the international monetary system with new global institutions and agreements.
Wilfried Fuhrmann

Are we facing a stock market bubble?

The explosion of equity prices since 1995 has led some analysts to conclude we are facing an asset bubble in the stock market. In the period February 1995 - July 1997 the Dow-Jones index doubled from 4000 to 8000; in the period November 1995 - May 1999, the Dow doubled from 5000 to 10,000. Overall equity prices in the four years 1995-1998 grew at the amazing and spectacular annual rate of 28%. The stock market returns in the latter half of the 1990s are significantly higher than the average and among the highest ever recorded. (See Table 1 and Table 2)
David I. Fand

Discussion of David I. Fand’s “Are we facing a stock market bubble?”

Substantial idle capacities in Europe, Japan, Southeast Asia and Latin America add significantly towards generating an elastic augmented supply for America. As a consequence of this hypothesis of a Keynesian global economy, an increase in American aggregate demand will lead to an increase in the U.S. trade deficit but not necessarily to any rise in U.S. prices as measured by the CPI, the PPI or the ECI. There is, however, strong evidence that the extremely rapid money growth has led to substantial increases in the prices of equities, real estate and nontradables. But the absence of inflation in the U.S. tends to handcuff the Fed since the chairman finds it difficult to restrict the accelerating growth of money supply in this rather extraordinary situation. Consequently, market professionals are liberated to borrow and leverage their portfolio positions, and equity prices continue to rise.
Hans Wiesmeth

What explains the Asian balance of payments crisis? — A simple third-generation approach

In 1997, the previously existing enthusiasm of investors for Asia was dramatically shaken by the occurrence and persistence of currency and banking crises. The series of crises initially started with speculative attacks on the Thai baht which, in July 1997, forced the authorities to abandon the fixed exchange rate system versus the US dollar. The crisis soon spread to other countries of the region and seriously afflicted South Korea, Indonesia, the Philippines, and Malaysia, too. Only days after the speculative attack on the Thai baht occurred, speculative attacks forced both the Philippine and the Indonesian central bank to give up the fixed parity against the US dollar and introduce a float. The values of the Malaysian ringgit and the Korean won also fell sharply in international markets. In addition, the banking crises forced the authorities in Thailand and Indonesia to close a number of financial institutions. Other countries like Hong Kong, Singapore, Vietnam, Taiwan, and China were indirectly affected because they suffered a significant deterioration of their competitiveness against the more seriously hit countries whose currencies depreciated.
Michael Frenkel

Causes and consequences of the Asian economic crisis

This article does not offer a complete answer to the question of what causes the collapse of the spectacular growth seen in the developing economies of Asia. Rather, it aims to identify the lessons that business people and policy-makers should draw from the available evidence about economic development and the antecedents of, and consequent events surrounding, the economic crisis that rocked the leading economies of Asia in the late 1990s.
Timothy M. Devinney

Functions of economic policy in promoting the efficiency of the international financial system

Efficient financial markets are an essential requirement for a high level of employment, for adequate economic growth, for price stability. This is undisputed. What is disputed is whether the market system satisfies this requirement automatically and free of charge. Yes it does, say fellow economists arguing solely on the basis of neoclassical equilibrium theory, firmly entrenched behind their dogma of constantly infallible price signals from unregulated markets given the rational forming of expectations by economic agents. Others contest such automatism. For if the expectations of economic agents are heterogeneous, if the forming pattern changes, if elements of adaptive or extrapolative forming are occasionally identified, expectations will sometimes be determined by a single dominant issue rather than by all the information relevant to evaluation; information will be ignored; information uncertainties will increase to an extent where information fails to trigger appropriate transactions; the markets in a macroeconomic system will be linked at least intermittently by quantitative restrictions instead of by allocation-optimising relative price shifts, hence placing exclusively private-interest optimisation endeavours into a risky and thus not precisely known conjunction with results that are not fully informative; all this will trigger sequences of prices and yields in financial markets resulting in misdirected macroeconomic trends.
Wolfgang Filc

Discussion of Wolfgang Filc’s “Functions of economic policy in promoting the efficiency of the international financial system”

This paper deals with a question of topical interest. It is written in a provocative style and contains an unconventional solution concept. In this way I found the paper congenial because its style eases considerably a discussant’s task to stimulate a controversial debate.
Bernhard Eckwert

Banking Systems and Restructuring


Universal banks — A reconsideration

As regards the role of the banking sector in economic development, numerous important contributions have been made in the literature of economic theory and economic history.lToday, I wish to focus on one aspect of this discussion, namely on the role and importance of the universal banking system.
Vincenz Timmermann

Efficiency of the banking system: The Italian case

This essay focuses on the situation of the Italian system in a European perspective. Several parties blame the limited size, the poorly diversified production, and the excessive capacity of this system. In the author’s view, recent ECB statistics and other empirical evidence seem to point out that the recent poor results of the Italian banking system mostly depend on a low credit quality and on a limited diversification of production. On the other hand, there are doubts with respect to the possibility to calculate univocal statistics for the Italian banking system, in the light of the marked difference observed between the Northern and Southern regions of the Country.
Gianandrea Goisis

Discussion of Gianandrea Goisis’s “Efficiency of the banking system: The Italian case”

A review of the economic performance of banks in countries throughout Europe (see ECB 1999) shows strengths and weaknesses, with some countries — among them Italy — having quite bad net margins and cost-income ratios.
Hermann Locarek-Junge

Institutional changes in economies in transition and stability of the banking system

The main criteria of a successful banking reform are first, at the macroeconomic level, a positive flow of financial resources to the enterprise sector, and second, at the microeconomic level, the efficient allocation of available resources.
Chuluunbaatar Enkhzaya

Discussion of Chuluunbaatar Enkhzaya’s “Institutional changes in economies in transition and stability of the banking sector”

Chuluunbaatar Enkhzaya gives a comprehensive overview of the state of the debate on the stability of banking systems in transition. I have hardly any critical comments to make and prefer therefore to supplement Mrs. Enkhzaya’s paper somewhat and to stress some of the views of Mrs. Enkhzaya with which I in general agree.
Jan K. Solarz

Central banking and financial stability in transition economies

The transition towards a market-type economy has experienced substantial setbacks in economic development due to crises of the financial sector.
Jens Hölscher

Public Sector Banks


The Saxon savings banks association

Saxony’s response to the challenges posed by competition in the banking sector
By passing the “Act to Restructure the Saxon Savings Banks and Landesbank Sachsen including Sächsische Aufbaubank” in March 1999, the state of Saxony has embarked on a new route to further develop the traditional public owned savings bank system in the light of proven principles and adapt it according tocurrent technical and economic challenges. Saxony has traditionally played a key role in the history of Germany’s public-law banks and the savings bank system in particular. Some of the early milestones in this development include:
  • 1826 establishment of the savings bank in Leipzig
  • 1908 establishment of the first regional association of savings banks
  • 1909 establishment of the first German clearinghouse for savings banks
Georg Milbradt

Process of change within the universal banking system in Europe

The economic efficiency of universal banks is superior to that of other banking systems even today. This evaluation is supported by practical experiences. Still, this opportunity can be used to reinforce the above hypothesis.
Michael Weiss

Public sector banks — Importance and restructuring

Discussion of Georg Milbradt’s “The Saxon savings banks association”
Upon closer examination the role of public sector banks in a banking system in keeping with today’s business and social developments has been under discussion for a long time already. For example, in 1964 Wolfgang Stützel submitted a detailed report commissioned by the Federal Minister of Economics which dealt with various questions in connection with this issue.1Stützel stated at the time that regional authorities would lose an important instrument of their independent regional planning and trade policies by dispensing with public sector banks. He also saw the necessity of the legal and economic system naming investment possibilities which completely discharge a diligent trustee (trustee investments), i.e. interest-bearing investment possibilities were to be offered and the state itself was to provide a guarantee for their creditworthiness.2
Bernd Schips

Quantitative Explorations in Financial Systems


Causal Links Between Financial Activity and Economic Growth: Evidence From Two-Wave Model Estimations

To clarify the causal links between financial activity and economic growth, a series of two-wave path models is estimated. It is shown that during the 70s and 80s finance was predominantly a supply-leading determinant of economic growth. The data suggest, however, that from about 1975-80, finance was far less beneficial – and possibly even detrimental – to growth.
Michael Graff

Sovereign risk, reserves, and implicit default probabilities: An option based spread analysis

As the Brady bond market indicates, USD bonds issued by different debtor nations show different interest rates. The conventional approach, to identify the spread as a compensation for default plus other market premia, lacks clear ad-vices to infer default probabilities. Our arbitrage-oriented reasoning argues that the spread is the price of insurance against default, materialized by a put option on the sovereign’s ability to pay back outstanding debt in foreign currency at the expiration date.
To identify the (lognormal) process of foreign reserves, we use spread data of bonds as well as fundamental economic data to infer t and sigma.
Alexander Karmann


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