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Marco Onado 20264 Comparative financial systems

Marco Onado 20264 Comparative financial systems. Course presentation Academic Year 2010 - 2011. Objectives.

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Marco Onado 20264 Comparative financial systems

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  1. Marco Onado20264 Comparative financial systems Course presentation Academic Year 2010 - 2011

  2. Objectives • Analyze the conceptual framework for comparing financial systems across countries and over time (in particular looking at the main channels of intermediation: banks vs financial markets). • Review the main characteristics of the financial systems of the industrialised countries looking at the households’ financial assets and the corporate sector’s financial liabilities. • Discuss – as significant case studies – the strategies of important global players of different countries, both American and European. • Analyze the long-term causes and implications of the 2007-09 financial crisis

  3. Questions we will try to answer • What are the main characteristics of a financial system and how can they be measured? • Why structural characteristics differ across countries and over time? • What are the main causes (macro and micro) of the financial crisis? • Why some financial systems (e.g. the Us and the UK) were hit so hardly, while other (e-g-: Italy and Spain) are still almost unscathed • What is the outlook at the beginning of 2011 for the main European banks? • What does that mean from the point of view of strategic decisions of financial intermediaries which want to be international or global?

  4. Main parts • General issues (role of the financial system; literature on comparing financial systems); • Anatomy of a crisis (the effects on main financial systems and the main causes of the crisis); • The main weaknesses from a macro and a micro point of view; • The strategic issues for the main global players.

  5. References • Teaching material • In particular Imf, Global financial stability report; Bank of England and Ecb, Financial Stability Review • Further reading • Presentations of each lecture • All documents are available on the mypage site • Office hours: Wed 10:30 – 12:00 • marco.onado@unibocconi.it (no answers on information available in the syllabus)

  6. Valuation • Final written test: • 6 multiple choice questions (2 point each) • 2 open questions (10 points each) • >30 points = 30 cum laude. • Time: 70 minutes. • Bonuses can be obtained through active participation and discussion. • Individual essays (as a part or alternative to the final test) can be assigned to attending students.

  7. The crisis was initially underestimatedThe Imf estimates of banks’ losses 7

  8. Public sector interventions in selected countries during the financial crisis

  9. Size of financial system support measure

  10. The effect on the real economy International GDP growth forecasts

  11. The effects on the real economyUnemployment Source: OECD Labour Force Statistics (Main Economic Indicators). (a) Survey-based measures of numbers of people unemployed. Data for the United Kingdom are to February 2009; data for the euro area and Japan are to April 2009; data for the United States are to May 2009.

  12. Central banks’ balance sheets as a percentage of GDP

  13. Shrinking banks

  14. A first conclusion that raises many questions • The biggest financial crisis ever • It came after a period of great financial innovation • According to the conventional wisdom (and most regulators) the international financial system was reasonably robust and resilient • Why it happened? • What will be the long-term consequences? • We need to get back to the fundamental question: what is the role of a financial system? What are the functions it performs?

  15. The size of the global financial system As a percentage of world Gdp World Gdp $ 57,6 tn

  16. The size of the financial system varies (Derivatives not included) A measure of financial deepening

  17. The composition of the financial system varies London int.l role

  18. An important warning • Debt is a wonderful thing but it must be repaid • Von Mises: It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating the premises • The Economist: lending is a sober business punctuated by odd moments of lunacy (The dark side of debt, 2006)

  19. Did the financial pyramid grow too much? Are some countries borrowing too much? Have some categories of final borrowers accumulated too much debt? Are derivatives (including ABS) a threat to financial stability? Is the international financial system robust enough to absorb a significant shock? The big question marks 19

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