FOCUS AREA 4: CHALLENGES OF EXTENDING MATURITY

문서에서 Long-Term Finance (페이지 38-41)

STRUCTURE BY PROMOTING DEVELOPMENT OF DOMESTIC MARKETS AND INSTITUTIONAL INVESTORS

While in theory well-functioning local capi-tal markets could promote long-term fi nance, in practice government-led reform efforts to develop them have had mixed success. Local capital markets offer benefi ts to borrowers and investors, including governments. They facilitate better risk sharing and a more effi -cient allocation of capital. Importantly, devel-opment of local bond and equity markets can improve the availability of long-term fi nancing for households and fi rms as well as govern-ments. These markets can also increase fi nan-cial integration by attracting foreign capital, which can improve access, lower the cost of capital, and facilitate risk sharing across coun-tries. Hence by broadening access to long-term fi nance beyond a small group of large fi rms and by reducing the reliance of those large fi rms on international markets, developing countries could further develop their domes-tic markets by addressing market failures and policy shortcomings. However, while capital markets expanded in many countries in the recent decade, many developing countries saw their markets stagnate despite well-intended government interventions (Laeven 2014).

Governments can facilitate the develop-ment of capital markets through sound mac-roeconomic policies, strong institutional and legal settings, and a well-functioning fi nan-cial infrastructure. De la Torre, Gozzi, and Schmukler (2007), for example, studied the impact of a set of reforms on stock market development in emerging markets, namely, stock market liberalization, enforcement of insider trading laws, and the introduction of

have a long-run horizon to avoid some of the short-termism that has been observed in the case of Chile. In addition, restrictions on portfolio allocations that limit the long-term instruments funds can invest in should also be removed.

The diffi culties of developing local capital markets and institutional investors that invest in long-term assets suggest that there are no quick fi xes. Development of markets is a very gradual and interactive process that depends on the country’s size and stage of develop-ment and that requires signifi cant reform ef-forts to improve underlying institutions. In an increasingly globalized world, not every country will need or be able to develop a local capital market at home.

NOTES

1. World Bank 2014; World Bank 2013c. For fur-ther work in this area, see http://www.g20.org /news/20130228/781245645.html.

2. A diagnostic framework was subsequently prepared by the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, and the Organisation for Economic Co-operation and Development (IMF 2013b).

analyzed unique data on the actual portfo-lios and bids of the universe of domestic in-stitutional investors in Chile. The researchers found that despite favorable institutional con-ditions in Chile, asset managers (mutual and pension funds) are signifi cantly tilted toward the short-term end of the country’s maturity structure, with a large portion of their port-folio in assets with maturities less than one year. In contrast, insurance companies invest much more long term, providing clues into what may be behind these differences (fi gure O.8).

The shorter investment horizon of Chilean mutual and pension funds compared with insurance companies seems to result from agency factors that tilt the managerial incen-tives. In the case of Chilean open-end funds, like mutual and pension funds, managers are monitored in the short run by the underlying investors, the regulators, and the asset manage-ment companies. This short-run monitoring, combined with the risk profi le of the available instruments, generates incentives for managers to be averse to investments that are profi table at long horizons (like longer-term bonds) but that can have poor short-term performance. In contrast, insurance companies are not open-end asset managers, receive assets that cannot be withdrawn in the short run, and have long-term liabilities because investors acquire a de-fi ned benede-fi t plan when purchasing a policy.

Thus, insurance companies are not subject to the same kind of short-run monitoring.

The regulatory scheme seems to be another factor behind the short-term nature of pen-sion funds. The Chilean regulation establishes a lower threshold of returns over the previous 36 months that each pension fund needs to guarantee. This type of short-term monitor-ing seems to push managers to move their in-vestments into portfolios that try to minimize the probability of triggering the guarantee.

Moreover, as this threshold depends on the average return of the market, it may gener-ate herding incentives and suboptimal portfo-lio allocations. Hence, governments need to ensure that compensation and benchmarking practices followed by institutional investors

0 10 20 30 40 50 60 70 80 90 100

0 1 2 3 4 5 6 7 8 9 10

Cumulative share of total portfolio, %

Years to maturity

Insurance companies Domestic mutual funds Pension fund administrators

FIGURE O.8 Maturity Structure of Chilean Institutional Investors

Source: Opazo, Raddatz, and Schmukler 2015.

• Financial systems are multidimensional. Four characteristics are of particular interest for benchmarking fi nancial systems: fi nancial depth, access, effi ciency, and stability.

These characteristics need to be measured for fi nancial institutions and markets.

• Financial systems come in all shapes and sizes, and differ widely in terms of the four characteristics. As economies develop, services provided by fi nancial markets tend to become more important than those provided by banks.

• The global fi nancial crisis was not only about fi nancial instability. In some economies, the crisis was associated with important changes in fi nancial depth and access.

one year—can contribute to economic growth and shared prosperity in multiple ways. Long-term fi nance reduces fi rms’ exposure to rollover risks, enabling them to undertake longer-term fi xed investments, contributing to economic growth and welfare. Access to long-longer-term fi nancial instruments allows households to smooth income over their life cycle—by investing in housing or education, for example—and to benefi t from higher long-term returns on their savings.

• Firm and household data show limited use of long-term fi nance in developing countries, particularly among poorer households and smaller fi rms. As fi nancial systems develop, the maturity of external fi nance lengthens. Banks are the main providers of long-term fi nance and the share of their lending that is long term increases with countries’ income. As coun-tries’ income grows, economies have more developed capital markets and institutional inves-tors that can support long-term fi nance.

• The use of term fi nance refl ects both the demand for and supply of contracts with long-term maturities and reveals the allocation of risk between users and providers. Greater use of long-term fi nance implies that lenders are exposed to greater risk relative to borrowers.

Optimal risk sharing between borrowers and lenders may lead to different equilibrium levels of use of long-term fi nance for different borrowers and lenders, and in different countries and at different points in time.

• Governments have a role to play in promoting long-term fi nance when it is undersupplied because of market failures and policy distortions. The government can promote long-term fi nance without introducing distortions by pursuing policies that foster macroeconomic stability, low infl ation, and viable investment opportunities; promoting a contestable bank-ing system with healthy entry and exit and supported with strong regulation and super-vision; putting in place a legal and contractual environment that adequately protects the rights of creditors and borrowers; fostering fi nancial infrastructures that limit information asymmetries; and promoting the development of capital markets and institutional investors.

In contrast, efforts to promote long-term fi nance through directed credit, subsidies, and government-owned banks have not been successful in general because of political capture and poor corporate governance practices.

C O N C E P T U A L F R A M E W O R K , S T Y L I Z E D F A C T S , A N D T H E R O L E O F T H E G O V E R N M E N T

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Conceptual Framework,

문서에서 Long-Term Finance (페이지 38-41)