资金流与金融风险管理
- 1. International Finance: Managing Capital Flows and Financial Risks Joint CCER-World Bank Institute course July 16-20, Beijing, China1
- 2. Capital Flow Volatility and Financial Risks: OverviewDr. Yan Wang, Senior Economist Managing Capital Flows and Financial Risks, a CCER-WBI joint course July 16-20, Beijing, China2
- 3. Capital Flow Volatility & Financial RisksI. Rise and Fall of Capital Flows Capital flow volatility Implicit government guarantees market failures Volatility hurts growth and hurts the poor most II. New issues in managing risks Fiscal risks and gov’t contingent liabilities Derivatives and risks “Value at Risk” Early warning indicators Short term flows and crises III. Policy options to manage financial risks A spectrum of capital flow interventions Chile: reserve requirements for short term inflows: pros and cons Sound banking system and regulations: currency risk exposure and etc. Competition and corporate governance crucial for market discipline Summary3
- 4. Global Integration and Capital Flow Volatility4
- 5. The rise and fall of international capital flows: capital market flows are volatileSource: GDF 2000.5
- 6. Capital Flow Volatility: FDI is More StableSource: GDF, 19996
- 7. Large reversals in net private capital flows7
- 8. Capital Flow Volatility is linked with Volatile GrowthRelationship between economic growth variability and volatility in private foreign capital flowsSource: Thomas et al “The Quality of Growth,” 2000.8
- 9. 1970-791980-841985-891990-9601020304050Number of episodesSystemiccrisesSmallercrisesCapital Flow Volatility is linked with Frequency in Systemic Banking CrisesFrequent Banking Crisis9
- 10. Banking Crises and aftermath are extremely costly for the real economy: unfair burden for the poorHigh Cost of Banking Crises10
- 11. Growth Volatility hurts the poor mostSource: Thomas et al “The Quality of Growth”, 2000.11
- 12. Financial Deepening in the Domestic Economy can facilitate Economic Growth, however...Source:Thomas et al “The Quality of Growth, 12000.12
- 13. Capital Account Openness is negatively related with GDP GrowthSource: Thomas et al “The Quality of Growth,” 2000.13
- 14. II. New Issues in managing risks: an overview of new topics in this courseFinancial and fiscal risks are linked Capital flow volatility may lead to a rising government contingent liabilities Derivatives may lead to heightened systemic risks (see Steinherr’s book) “Value at risk” method is important Early warning indicators of financial crises Short term debt should be controlled, regulated, and monitored, carefully.14
- 15. Fiscal cost of banking crises, % of GDP15
- 16. Derivatives may lead to heightened systemic risk: Markets have been growing rapidly, 1991-199716
- 17. Value at Risk (VAR) is an important tool to measure risk“The Daily Earning at Risk for our combined trading activities averaged approximately $15million…” J.P. Morgan 1994 annual report VAR summarizes the expected maximum loss (or worst loss) over a target horizon (day/month) within a given confidence interval. It allows us to estimate company-wide risks in one number and compare across different companies/markets It is now widely used in firms and banks.17
- 18. Value at Risk (VAR): for general distribution and an exampleDefine W0 as initial investment, R rate of return, then at the end of the day/month, W=W0(1+R). Denote the expected return as and volatility of R as ; and the lowest portfolio value at the given confidence level c as W*=W0(1+R*). VAR is defined as the dollar loss relative to the mean, Value at Risk (mean)=E(W)-W*= - W0(R*- ) (1) J.P. Morgan’s distribution of daily revenue in 1994: Mean revenue is $5.1m, n=254. Select c=95%, 254x5%=12.7. In the chart, we find the 5% of occurrences (15 obs) below -$9m. After interpolating, we find W*= -$9.6m The VAR of daily revenues, relative to the mean is VAR = E(W) – W*= $5.1m- (-$9.6m) = $14.7m (2) Absolute VAR=$9.6m18
- 19. Short Term Capital Flows are Linked to Financial Fragility: Short term debt/reserve ratios peaked before crisesSource: GDF, 199919
- 20. Short Term Debt /Reserve Ratios are good warning indicators of financial fragility: It peaked before the Peso crisisSource: GDF, 199920
- 21. Short-term Debt as percent of international reserves: a liquidity index21
- 22. Short-term Debt as percent of international reserves: a good warning indicator22
- 23. GDP growth and growth of short-term debt: Pro-cyclical to growth and exacerbate boom/bust23
- 24. GDP growth and growth of short-term debt: Pro-cyclical to growth and exacerbate crises24
- 25. III. Policy options to manage fiscal and financial risks A spectrum of capital flow interventions Chile: reserve requirements for short term inflows: pros and cons Prudential fiscal policy and disciplines Do not provide implicit guarantees Sound banking system and regulations: regulate foreign currency exposure Competition and corporate governance crucial for market discipline Summary 25
- 26. Policy Options: A Spectrum of Capital Flow Interventions1. Financial Autarky 2. Quantity Controls (All Capital Inflows) 3. Tax/Non-Remunerated Reserve Requirement (All Capital Inflows) 4. Quantity Control on “Risky” Inflows 5. Tax on “Risky” Inflow 6. Remunerated Liquidity Requirements 7. Purchase Insurance (e.g:- Contingent Liquidity Facility) 8. Other Risk Management Techniques (Asset/Liability Management) 9. No Intervention Reduce Capital Inflows Change Inflow Composition Self-Insurance Risk Management1st. Best WorldNth. Best WorldIncreasingly Severe Intervention: Reduction in Benefits of Foreign Capital & Reduction in RisksSource: Powell, On Liquidity Requirements, Capital Controls and Risk Management: Some Theoretical Considerations and Practice from the Argentine Banking Sector, 199926
- 27. Policy Options: Market Based Capital Control for Short Term Inflows in ChileSource: Schmidt-Hebbel & Hernandez, Capital Controls in Chile: Effective? Efficient? Endurable?, 199927
- 28. Chile and Malaysia: Two cases of Temporary Capital Controls for Short Term InflowsSource: GDF 199928
- 29. Chile: Short term capital inflows have been declining: URR is effectiveSource: GDF 199929
- 30. Malaysia: Short Term Capital Inflow declined temporarilySource: GDF 199930
- 31. Pros and cons of Chile’s URRPros Provide more room for the use of independent monetary policy led to a fall in short term inflows, reducing Chile’s indebtedness changed the composition of capital inflows toward longer maturities, making Chile more resilient to shocksCons did not affect the real exchange rate led to an inefficient allocation of resources led to higher short term interest rates, reducing investment and LT growth provided incentive for tax evasion.31
- 32. SummaryInformation asymmetry and market imperfection prevail in financial markets--roles for government Capital flow is volatile in nature and volatility hurts the poor most--rationale for public policy Tight fiscal discipline good, guarantees are bad Sequencing in financial openness key Correcting incentives, building institutions and enforcing regulations crucial Market-based control on ST flows helps Early detection of problems is possible Decisive restructuring vital32
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