- Stefan Gerlach, and Paul Gruenwald
- Published Date:
- July 2006
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Library of Congress Cataloging-in-Publication Data
Procyclicality of financial systems in Asia/edited by Stefan Gerlach and Paul Gruenwald
Includes bibliographical references and index.
Contents: Procyclicality and volatility in the financial system: the implementation of Basel II and IAS 39 - Sources of procyclicality in East Asian financial systems - Procyclical financial behaviour: what can be done?
ISBN 1-1-4039-8751-3 (cloth)
1. Financial institutions-Asia. 2. Business cycles-Asia. 3. International finance. I. Gerlach, Stefan. II. Gruenwald, P. (Paul).
10 9 8 7 6 5 4 3 2 1
15 14 13 12 11 10 09 08 07 06
Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne
- List of Tables
- List of Figures
- Participants and Other Attendees
- 1 Introduction
- Stefan Gerlach and Paul Gruenwald
- 2 Procyclicality and Volatility in the Financial System: the Implementation of Basel II and IAS 39
- 3 Sources of Procyclicality in East Asian Financial Systems
- 4 Procyclical Financial Behavior: What Can Be Done?
List of Tables
- 2.1 Selected research on capital charge cyclicality, reproduced from Table 4 of Kashyap and Stein (2003)
- 3.1 Correlation coefficients with fourth difference of log of real GDP
- 3.2 Correlation coefficients with fourth difference of log of real GDP - cyclical asymmetries
- 3.3 Correlation coefficients with fourth difference of log of real house prices
- 3.4 Correlation coefficients with fourth difference of log of real GDP
- 3.5 Correlation coefficients with fourth difference of log of real house prices - cyclical asymmetries
- 3.6 Correlation coefficients with fourth difference of log of real GDP - cyclical asymmetries
- 3.7 Exposure of international (BIS) banks to Asian countries
- 3.8 Determinants of credit growth, panel estimation
- 3.9 Equations for loan growth
- 3.10 Equations for bank lending margin over short-term interest rate
- 3.11 Equations for bank provisioning rate
- 3.12 Equations for advanced and emerging market economies
- 3.13 Equations differentiating foreign and domestic effects
- 3.14 Varying property price proxies
- 3.15 Equations differentiating foreign and domestic effects using residential property prices
- 3.16 Estimates for public bank ownership dummy
- Al Determinants of credit growth, panel estimation
- A2 Determinants of credit growth, panel estimation
- A3 Correlation coefficients with fourth difference of log of real GDP - cyclical asymmetries since 1990
- A4 Correlation coefficients with fourth difference of log of real GDP - cyclical asymmetries since 1990
- A5 Correlation coefficients with fourth difference of log of real house prices - cyclical asymmetries since 1990
- A6 Number of banks per country
- A7 Characteristics of the Bankscope sample
- A8 Equations for Hong Kong
- A9 Equations excluding Japan
List of Figures
- 2.1 Capital inflows, real GDP growth and credit rating in Indonesia, Korea, Malaysia, the Philippines, Taiwan, China and Thailand
- 2.2 Trend and cycle: Basel I and II compared
- 2.3 Does Basel II add to procyclicality?
- 3.1 Credit and asset price deviations from trend
- 3.2 Growth rate of banking credit and GDP 1991-2002
- 3.3 Banking credit/GDP 1991-2002
We are very grateful for the support and encouragement received from Joseph Yam, Agustín Carstens and David Burton.
We would also like to thank those who contributed the excellent logistical support that made the seminar a success. On the HKIMR side, Matthew Yiu and Emily Cheng took care of numerous details in making sure the arrangements were top notch. They also played a key role in helping to coordinate the production of this volume. On the IMF side, Ms Atta Tse and Mr Alfred Wong of the Hong Kong SAR sub-office smoothly handled a truly impressive number of organizational details, thereby contributing to a very happy (and hence productive) group of conference participants.
Last but not least, we would like to thank Amanda Hamilton and Katie Button of Palgrave Macmillan, without whose expertise and, most importantly, patience, we never would have gotten this volume off the ground.
Participants and Other Attendees
David Burton is Director, Asia and Pacific Department of the International Monetary Fund.
Agustín Carstens is Deputy Managing Director at the International Monetary Fund.
K. C. Chan is Dean, School of Business and Management at the Hong Kong University of Science and Technology.
Gerard Dages is Vice President, Emerging Markets and International Affairs at the Federal Reserve Bank of New York.
Charles Goodhart is Professor of Economics at the London School of Economics.
Már Gudmundsson is Deputy Head, Monetary and Economic Department at the Bank for International Settlements.
Maximilian Hall is Professor of Banking and Financial Regulation at Loughborough University.
Mingzhi Han is Director-General, International Department at the China Banking Regulatory Commission.
Eiji Hirano is Assistant Governor at the Bank of Japan.
Kevin Ho is Permanent Secretary, Financial Services and the Treasury (Financial Services) in the Hong Kong SAR Government.
Stefan Ingves was Director, Monetary and Financial Systems Department at the International Monetary Fund and is currently Governor of the Riksbank.
Sang-Kuang Ooi is Deputy Governor of Bank Negara Malaysia.
Peter Pang is a Deputy Chief Executive of the Hong Kong Monetary Authority.
Yung-Chul Park is Professor, College of Political Science and Economics at Korea University.
William Ryback is a Deputy Chief Executive of the Hong Kong Monetary Authority.
Andrew Sheng is the former Chairman of the Hong Kong Securities and Futures Commission.
Glenn Stevens is Deputy Governor at the Reserve Bank of Australia.
Amando Tetangco was Deputy Governor for the Banking Services Sector at the Bangko Sentral ng Pilipinas, and is currently Governor, Bangko Sentral ng Pilipinas.
José Viñals is Director General, International Affairs at the Banco de España.
Tarisa Watanagase is Deputy Governor, Financial Institutions Stability at the Bank of Thailand.
Wong Fot Chyi is Executive Director, Macroeconomic Surveillance Department at the Monetary Authority of Singapore.
Joseph Yam is Chairman of the Hong Kong Institute for Monetary Research and Chief Executive of the Hong Kong Monetary Authority.
Also in attendance
Sean Craig is Senior Economist, Monetary and Financial Systems Department at the International Monetary Fund.
Stefan Gerlach was Director of the Hong Kong Institute for Monetary Research and is currently Head of Secretariat, Committee on the Global Financial System at the Bank of International Settlements.
Paul Gruenwald is the International Monetary Fund’s Resident Representative in Hong Kong SAR.
Alfred Kammer is Adviser, Office of the Deputy Managing Director at the International Monetary Fund.
Julia Leung is an Executive Director (External) of the Hong Kong Monetary Authority.
In November 2004, the Hong Kong Institute for Monetary Research1 and the International Monetary Fund (IMF) co-hosted a one-day seminar on the procyclicality of financial systems in Asia. The event took place at the Hong Kong Monetary Authority (HKMA).
The seminar was the brainchild of Norman Chan, former Deputy Chief Executive of the HKMA. Mr Chan argued that while policy-makers across Asia continued to be concerned about the tendency for financial sector activity to amplify real sector activity, there had been very little regional dialogue on this issue. Indeed, he noted that the bulk of the analytical work and all of the conferences to date had focused almost exclusively on European and US experiences. Mr Chan thought that an Asia-based and Asia-focused event on the topic was both appropriate and overdue, and asked whether the IMF would lend its support to the idea. The Fund, with strong support from its management, was happy to agree.
Thus, the objective of the seminar was to bring together for the first time senior policy-makers from across the Asia region, academics and staff of international organizations to share experiences in identifying, measuring and addressing financial sector procyclicality in the Asian context. The aim of the seminar was functional - it was pitched at practitioners rather than academics, and the work and discussions were more in the spirit of “how to” rather than trying to arrive at crisp theoretical results. The present volume brings together the three main discussion papers of the seminar as well as comments on those works by key participants.
The conference was organized by Stefan Gerlach, former Director of the Hong Kong Institute for Monetary Research and former Executive Director of the HKMA’s Research Department, and Paul Gruenwald, the IMF’s Resident Representative in Hong Kong SAR. They also edited this volume.
It is our sincere hope that this volume 2 and, more generally, the process begun by the seminar, will be the first step in a long and fruitful regional dialogue. The ultimate aim is to work towards a better understanding of the nature and consequences of procyclicality of financial sectors in Asia as well as the formation of appropriate, welfare-enhancing policy responses.
Hong Kong Institute of Monetary Research
Deputy Managing Director
International Monetary Fund