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After the crises: assessing the costs and benefits of financial liberalisation

After the crises: assessing the costs and benefits of financial liberalisation. Adair Turner Chairman of the UK Financial Services Authority. 14th Chintaman Deshmukh Memorial Lecture RBI, Mumbai February 2010. Capital inflows to emerging markets 1980 – 98.

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After the crises: assessing the costs and benefits of financial liberalisation

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  1. After the crises: assessing the costs and benefits of financial liberalisation Adair Turner Chairman of the UK Financial Services Authority 14th Chintaman Deshmukh Memorial Lecture RBI, Mumbai February 2010

  2. Capital inflows to emerging markets 1980 – 98 Equity includes direct investment and portfolio equity investment. Debt includes portfolio debt investment and other investment. Emerging markets includes: Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Hungary, Hong Kong, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Russia, Singapore, South Africa, Thailand, Turkey and Venezuela. Source: IMF International Financial Statistics

  3. Total global cross-border inflows as % of global GDP Banking and Other Flows Source: IMF Global Financial Stability Report, 2007

  4. Capital flows to emerging markets 1998 – 2008 Equity includes direct investment and portfolio equity investment. Debt includes portfolio debt investment and other investment. Emerging markets includes: Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Hungary, Hong Kong, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Russia, Singapore, South Africa, Thailand, Turkey and Venezuela. Source: IMF International Financial Statistics

  5. FX trading values and world GDP: 1977 – 2007 Source: BIS Triennial Central Bank Survey, IMF International Financial Statistics

  6. Corporate Household Financial USA debt as a % of GDP by borrower type Source: Oliver Wyman

  7. Thai Baht, Korean Won and Indonesian Rupee: Exchange rates versus US$ 1990 – 1998 Real exchange rate index: January 1990 = 100 Source: GTIS and Datastream)

  8. Growth of interest rate derivatives values 1987 – 2009 Source: ISDA Market Survey (1987-1997), BIS Quarterly Review (1998-2009). Includes interest rate swaps and interest rate options.

  9. Notes: Public issuance only. Full-year issuance except for 2008 which is up to and including September 2008. ‘Other ABS’ includes Auto, Credit Card and Student Loan ABS. Source: Bank of England Global issuance of asset-backed securities

  10. Global credit derivatives outstanding Notional amounts outstanding, $Tr Source: ISDA Market Survey

  11. Global issuance of Collateralised Debt Obligations:Cash and synthetic $bn Source: IMF Global Financial Stability Report, 2006

  12. ) Global daily oil futures trading and daily oil production Source: NYMEX

  13. Financial firms’ CDS and share prices Firms included: Ambac, Aviva, Banco Santander, Barclays, Berkshire Hathaway, Bradford & Bingley, Citigroup, Deutsche Bank, Fortis, HBOS, Lehman Brothers, Merrill Lynch, Morgan Stanley, National Australia Bank, Royal Bank of Scotland and UBS. CDS series peaks at 6.54% in September 2008. Source: Moody’s KMV, FSA Calculations

  14. Benefits of: • Lower transaction costs • Finer match to investor preferences • Improved allocation of capital? • Higher savings? + Net economic value added Increasing market liquidity  Economic Value Added Net impact of useful and harmful speculation – How valuable is increased market liquidity?Possible conceptual framework

  15. Financial Deepening: economically value-added?Up to a point? Net Economic Value Added Financial intensity of the economy

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