...NBER WORKING PAPER SERIES BANK SUPERVISION AND CORPORATE FINANCE Thorsten Beck Asli Demirgüç-Kunt Ross Levine Working Paper 9620 http://www.nber.org/papers/w9620 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 April 2003 This paper’s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. We thank J. Boyd, G. Caprio, C. Schenone, seminar participants at the University of Minnesota and the Banco Central de Chile for helpful suggestions. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. ©2003 by Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine. All rights reserved. Short sections of text not to exceed two paragraphs, may be quoted without explicit permission provided that full credit including ©notice, is given to the source. Bank Supervision and Corporate Finance Thorsten Beck, Asli Demirgüç-Kunt, and Ross Levine NBER Working Paper No. 9620 April 2003 JEL No. G3, L51, O16, G21 ABSTRACT We examine the impact of bank supervision on the financing obstacles faced by almost 5,000 corporations across 49 countries. We find that firms in countries with strong official supervisory agencies that directly monitor banks tend to face greater financing obstacles. Moreover, powerful official supervision tends to...
Words: 15311 - Pages: 62
...internal economy and also the banking sector. This argument is supported by examples that demonstrate how the Swedish model enabled quick and effective implementation and has provided the Swedish banking sector stability since its inception in1992. Sweden has a socialist democratic system with a capitalist economy, a socialist embedded welfare system and a deregulated financial market which has benefited from constant economic growth (Central Intelligence Agency, 2010). Sweden’s growth continued till the 1990’s when it experienced the ‘1990 Bank Crisis’ similar to the American subprime mortgage crisis (Phillips, 2009). The United States has a liberal democracy with a market orientated economy which is one of the most powerful economies in the world with a GDP of $14.29 trillion (Central Intelligence Agency, 2010). However unlike Sweden the United states economy does suffer from insufficient economic infrastructure and medical and welfare systems (Central Intelligence Agency, 2010). Both Sweden and the US have central banks, the Riksbank and the Federal Reserve Bank respectively. Riksbank’s primary role is monetary policy and responsibility for stability within the economy and, in doing so has to act with in the guidelines of the Sveriges Riksbank Act (The Sveriges Riksbank, 2010). The Riksbank works closely with the Swedish government in...
Words: 2479 - Pages: 10
...Md. Mahafujur Rahman ID. NO. 0102123962 Commercial paper In Bangladesh almost all the corporation collect fund from bank as long term or short term loan. But internationally this scenario is pretty much different. There corporation issue bond for long term financing and short term financing is mostly deepened on a instrument called commercial paper. Commercial paper market, popular around the world, is in a very early stage of development in Bangladesh. Eastern Bank Limited is the pioneer of CP in the country; it raised Tk. 500 million for ACI Limited in 2013. Since then, this market is growing very fast in our country with approximate growth of 593.10 per cent in 2015. ACI Limited is so far the largest issuer of commercial paper in the country with approximately 20 per cent market share. The amount of current outstanding CPs is close to Tk. 10,050 million. What is commercial paper? Commercial Paper (CP) is basically a short-term debt security issued by highly rated companies to raise funds for funding operating expenses as well as current assets such as account receivables and inventories. Maturities on CP rarely range any longer than 270 days though it can be up to 365 days. CP is being issued in the form of promissory note in Bangladesh. It is typically issued at discount like Treasury Bills, reflecting prevailing market interest rates. That means, investors...
Words: 939 - Pages: 4
...kingdom of Bahrain. The organization is supported by 200 institution members from 45 countries across the global. The AAOIFI is one of prominent Islamic agency that attempts to install accounting and auditing standard for Islamic financial industry. The main object is to develop and disseminate accounting and auditing thought relevant to Islamic financial institutions and their applications. Its tasks include holding seminars, publishing periodicals, newsletters, commissioning research and prepare, promulgate, interpret and review, the accounting and auditing standards for Islamic financial institutions. Its notable efforts are to inform and encourage banking supervisors around the world to adopt its standard as the benchmark for Islamic financial institutions in their countries. These attempts to improve the transparency and comparability of the financial reporting of Islamic financial institutions are bearing fruit. The AAOIFI’s standard has been applied in various countries such as Bahrain and Sudan which require Islamic Banks in their countries to follow AAOIFI’s standards. In Qatar and Saudi Arabia AAOIFI’s standards are specified as guidelines.To achieve international recognition for its standard, AAOIFI has also been working with conventional international bodies which involve in the development of standards and regulation of banks such as the International Monetary, international Accounting Standards Board, and the Basel Committee.55 The organization plays a crucial role in...
Words: 2021 - Pages: 9
... This section discusses the factors led to the credit crisis. 2.1 Low interest rate Since there was a relatively low interest rate for borrowing money from the US federal reserve because of the US government policy and foreign money from the ‘savings glut’ like China, Japan and Germany flowing to US, it resulted in relaxed credit conditions which banks and home buyers from the US can then borrow money easily. Thus, easy credits fuelled both hosing and credits bubbles. Low interest rates made mortgage payment cheaper, and it drove up the demand for homes, which helped in pushing up the housing prices. As the rapid increase in hosing prices, more and more borrowers to be priced out of the hosing market. Then, the mortgage lenders tended to offer a wide rage of mortgage instruments, which lower the standards of borrowing money, and those mortgages were called ‘subprime mortgages’. It resulted in the falling of the mortgage quality and a hosing bubble was then formed because of the overconfidence on the future growth in prices for home in the U.S. ....
Words: 1817 - Pages: 8
...financial crises that occurred in 2007-2008, the U.S government was moving towards the extreme side of a free market. This approach ultimately led towards the biggest financial crises that was experienced worldwide. Analysis of events that led to the crises Growth in home loan market In 2000, $ 7.4 trillion was the value of outstanding home loans, and this vale rose to $ 10.6 trillion by 2008. The subprime mortgages were estimated at 1.3 Trillion dollars in 2007, and they represented about 21 percent of the outstanding loans. Such unprecedented growth was due to different factors. In November 2003, the interest rates were 5.82 percent and it made house purchasing costs relatively low as compared to rental alternative. The key contributing factor here was the change in the way how home loans were provided. Increase in banks’ exposure to CMO sector Traditionally, the banks provided loans secured against some house, they financed it through their own deposit base and through access to interbank money market and corporate deposits. The loan base of the bank was restricted to their balance sheet strength and capital requirements which they were required to hold against their loan base. However, from late 1990’s, banks of instead of holding home loans in their balance sheet till they mature, started to sell them out to third party...
Words: 2538 - Pages: 11
...Chinese banks were subject to the requirements of their government’s central intended economic policy. Since 1978, the Chinese government has focused on creating a banking system with different types of institutions and agencies that function in diverse markets with clearly stipulated functions. One of the main objectives of the Chinese banking reforms has been to give incentives to the financial institutions to become more aggressive, commercial entities. Such strategy has limited the competition between such institutions and only affects the agencies that perform similar tasks. However, banks in China have not been allowed complete autonomy, and are expected to comply with government directives that who often place strategies to be used by banks to improve their profitability and their solvency. Different classes of banks are currently operating in China, with different structures and serving different functions. First, the wholly state owned banks. Second, “equitized” commercial banks or banks that were wholly state-owned and were turned into join stock firms in which the government is the major stockholder. Third, includes a mixture of local banks, with municipal governments as principal stockholders. Forth, join-stock commercial banks that were founded after the beginning of the China’s banking reforms and with relatively low levels of government ownership. The Chinese banking industry was entirely dominated by wholly state-owned banks, some of those banks are: the...
Words: 3656 - Pages: 15
...The Effect Of Capital Structure When Expected Agency Costs Are Extreme The Effect of Capital Structure when Expected Agency Costs are Extreme Harvey, C.R. Lins, K.V. Roper, A.H. Journal of Financial Economics 74 (2004) 3-30 RESEARCH MOTIVATION The objective of this paper is, using international evidenceto investigate whether debt can mitigate the effects of agency and information problems. Prior theoretical research has shown that debt can be used to align managers’ interest. More specifically, when a meaningful conflict exists between outside shareholders and management due to the separation of ownership and control, debt helps to discourage overinvestment of free cash flow by self-serving managers (Jensen Meckling [1976], Jensen [1986] Stulz [1990] and else). Moreover, even without conflicting interest, debt gives management the opportunity to signal its willingness to pay out cash flows or be monitored by lenders or both, and thus to show that they do not or will not overinvest (Ross [1977] and else). Benefits to debt could be greater (1) when management has a large base of assets in place that it can exploit, because assets in place generate cash flow that can lead to either overinvestment or the outright diversion of corporate funds (Jensen [1986] and else) or (2) when management has few future growth opportunities, because when a firm has expected future growth opportunities, debt can limit management’s ability to pursue positive net present value projects, leading...
Words: 2522 - Pages: 11
...today’s global world entrepreneurs that run their own start-ups need to evolve with the ever changing business world. As their business grows they also need to grow and adjust (Burns, 2011). It is very important that entrepreneurs of today transform themselves into leaders to manage their business better as the business needs to change as per the culture and structure. This report will discuss about Mai Jadawi, her business is about natural beauty products, the legal process she went through to register her business in Jeddah, Saudi Arabia, launch of her business and the obstacles she faced and is still facing while operating her business. 2. Identifying an Entrepreneur Female entrepreneurs contribute significantly to the economic growth and creation of jobs in developed and developing nations (Verheul and Thurik 2001). Mai Jadawi is the entrepreneur we as a tram chose to study. She is an independent entrepreneur who started her own business revolving around organic cosmetic products. It was an opportunity she took as she felt the market offerings at the time were lacking, starting off by distributing her own products to just her friends, before expanding her business. Mai can be considered to be an opportunist, someone who through creativity and vision creates something of worth to society and the economy of Saudi Arabia. Such people are hugely driven by their vision, aiming to change the market by using new...
Words: 1501 - Pages: 7
...Manila, on Monday, the twenty-third day of July, two thousand seven. Republic Act No. 6977 January 24, 1991 as amended by R.A. 8289 AN ACT TO PROMOTE, DEVELOP AND ASSIST SMALL AND MEDIUM SCALE ENTERPRISES THROUGH THE CREATION OF A SMALL AND MEDIUM ENTERPRISE DEVELOPMENT (SMED) COUNCIL, AND THE RATIONALIZATION OF GOVERNMENT ASSISTANCE PROGRAMS AND AGENCIES CONCERNED WITH THE DEVELOPMEN Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:: CHAPTER I Section 1. Title. — This Act shall be known as the "Magna Carta for Small Enterprises." Sec. 2. Declaration of Policy. — recognizing that small and medium scale enterprises have the potential for more employment generation and economic growth and therefore can help provide a self-sufficient industrial foundation for the country, it is hereby declared the policy of the State to promote, support, strengthen and encourage the growth and development of small and medium enterprises in all productive sectors of the economy particularly rural/agri-based enterprises. To this end, the Senate shall undertake the spur the growth and development of small and medium enterprises throughout the country and thereby attain countryside industrialization: (a) by assuring, through the establishment of adequate support structure, and the creation and promotion of an environment conducive to the viability of these enterprises, establishment of mechanisms, the access and transfer of appropriate...
Words: 3730 - Pages: 15
...fastest pace in nearly three years, signaling steady yet unglamorous expansion of approximately 3% annualized. During the early parts of 2014 the economy has been stagnate. Although since the Federal Open Market Committee meeting in March 2014 economic indicators are indicating growth in economic activity. The growth was stunted in the early part of 2014 mainly due to adverse weather conditions during the winter months. This trend is reflected in the initial estimates of real GDP growth for the 1st quarter of 2014 which slightly increased by an annual rate of .1 percent compared to the 4th quarter of 2013. The growth rate shown in 2014 is compared to a 2.4 percent growth rate realized in 4th quarter of 2013. The deceleration in real GDP growth during the first quarter of 2014 is a direct result of negative contribution from exports, private inventory investments, and state and local government spending. This trend in GDP is a direct result of the federal fiscal policy established for 2014. Long term interest rates during the years after the financial crisis were intentionally maintained at very low levels. These low levels of long term interest rates enabled the economy to bounce back and experience moderate growth. During 2013, we saw interest rates begin to increase with further increases expected in the coming years. The current levels of the money supply in the United States as of March 2014 are at all-time highs. The M2 in the United States has gradually been increasing since January...
Words: 1209 - Pages: 5
...1990-2000, this NGO received donor funds of $6.3 million. Donors included the CGAP, a donor organization associated with the World bank2, as well as Accion International who was financed by US Aid. Thus, donor agencies were the principals and Compartamos AC was the agent whose mission was to aid the poor by offering them credit. In 2000, a for-profit finance named company Financiera was Figure 1: Organisational relationships Public funds Development bodies : CGAP, IFC Compartamos formed with a paid-in capital of $ 6 million. The goal was to make the management more professional and Private funds Accion 68% Compartamos (for-profit) Compartamos AC (NGO) 32% aggressive to reach its targeted outreach to ensure financial sustainability thorough economies of scale. The shareholders of Financiera Compartamos included the NGO, Compartamos AC, as well as Profund, Accion International and IFC, the private lending arm of the the World Bank group. Together, these agencies with 1 The case has been prepared by Professor Arvind Ashta of the Burgundy School of Business (Groupe ESC Dijon-Bourgogne) for classroom discussion and study. 2 The CGAP is housed at the World bank but is an independent body. It is currently presided by an executive of the World Bank and its governing members include also the IFC, another member of the World...
Words: 1436 - Pages: 6
...ICRA Indonesia Comment June 2013 Minimum Capital Provisioning for Credit Risk – a Comparative Study of Basel I and Basel II Contact: Pradnya Desai Manager– Rating Analyst +62 21 576 1516 desai.pradnya@icraindonesia.com Drafted in 1988 and 2004 respectively, Basel I and II have, through quantitative and technical benchmarks, helped develop a level playing field in the banking The “Basel Committee on Banking Supervision” (BCBS) is comprised of the central banks and regulatory authorities of mainly the G20 countries (including Indonesia) and other leading nations. The committee issues broad guidelines and standards to ensure best practices in the banking supervision and risk management. (Source: www.bis.org) supervision, regulation and capital adequacy standards across the signatory nations. As of today, more than 100 countries have implemented Basel I and around 112 countries are implementing Basel II (Source: Wikipedia, Basel committee on banking supervision survey, 2010). Basel II generated more interest on account of the multitude of financial crises that the world economy faced during the 1990s and early 2000s. Further, its implementation gained momentum among the emerging economies after the 2008 crisis. While many countries have already commenced Basel III (drafted in 2010) implementation, Indonesia is yet to finalise the norms on the subject. Basel III while relevant at a future date will not be implemented in...
Words: 3956 - Pages: 16
...Internship Report Impact of Credit Rating on Corporate and Banking Sectors of Bangladesh A Study based on Ratings of Credit Rating Agency of Bangladesh Limited (CRAB) Exam Roll: 091127 Internship Report on Impact of Credit Rating on Corporate and Banking Sector of Bangladesh A Study based on Ratings of Credit Rating Agency of Bangladesh Ltd. (CRAB) Prepared For: Chairman Internship Placement Committee Prepared by: Exam Roll Number: 019927 Class ID: 892 4th year, 8th semester Batch Number: 18th, BBA Program Academic Session: 2008-09 Institute of Business Administration (IBA-JU) Jahangirnagar University, Savar, Dhaka 1342 Date: 16.02.2013 Letter of Transmittal February 16, 2013 Chairman Internship Placement Committee Institute of Business Administration Jahangirnagar University Savar, Dhaka 1342. Subject: Submission of Internship Report Dear Sir, It is an event of great pleasure for me to prepare and present the internship report on ‘Impact of Credit Rating on Corporate and Banking Sectors of Bangladesh: A Study based on Rating of Credit Rating Agency of Bangladesh Limited (CRAB)’ which is a requirement for the completion of BBA program. In this report I have tried to identify different aspects of the credit rating service and its impact on the corporate and banking sectors of the country. I have tried my best to organize all relevant information and do according to the instructions of preparing...
Words: 12313 - Pages: 50
...Definition of Corporate Governance Corporate governance deals with the agency problem: the separation of management and finance. This basic agency problem suggests a possible definition of corporate governance as addressing both an adverse selection and a moral hazard problem. The traditional definition of corporate governance was such a narrow view as Shleifer and Vishny (1997) mentioned that the ways in which the suppliers of finance to corporations assure themselves of getting a return on their investment. Recent trend, however, express doubts on the definition that solely focuses on shareholder value. EPA (1998) shows the constituents of corporate governance as follows: Table 1: Constituents of corporate governance Stakeholders | Interest | Desired Management | Shareholders | Maximize profitsAsset protection | Profitable managementSound management | Investors | Efficient investment | Exploitation of profitable investment | Creditors | Protection of receivables | Sound management | Main bank | Corporate growth | Sound managementPursuit of productivity growth | Employees | Pay raiseSecure employment RelationshipPromotion | Profitable managementSound managementSustainable corporate growth | Consumers | High quality goods & services | Pursuit of productivity growth | Suppliers | Business stabilityExpansion of business | Sound managementSustainable corporate growth | Source: EPA (1998), Mitsubishi Research Institute, Inc. The Characteristics...
Words: 1839 - Pages: 8
