Financial System Stability, Regulation, and Financial Inclusion (ADB Institute Series on Development Economics)

Financial authorities face a number of key challenges, including maintaining financial stability; ensuring long-term finance for stable economic growth; promoting greater access to financial services for both households and small and medium-sized enterprises (SMEs); and fostering a competitive financial industry. Access to finance for SMEs is particularly important, given their large shares in economic activity and employment in Asian economies. Striking the appropriate balance in achieving these objectives through financial supervision and regulation is an important policy issue for financial regulators. This book is the record of a joint conference in 2014 organized by the Asian Development Bank Institute; Financial Services Agency, Japan; and International Monetary Fund Regional Office for Asia and the Pacific on the topic of financial system stability, regulation, and financial inclusion. Participants included noted scholars, policymakers, and financial industrial participants from Asia. **ADB Institute** The ADB Institute, located in Tokyo, is the think tank of the Asian Development Bank. Its mission is to identify effective development strategies and improve development management in ADB’s developing member countries. **Financial Services Agency, Japan** The Financial Services Agency, Japan is responsible for ensuring the stability of Japan’s financial system, the protection of depositors, insurance policyholders and securities investors, and smooth finance through such measures as planning and policymaking. **International Monetary Fund Regional Office for Asia and the Pacific** The International Monetary Fund Regional Office for Asia and the Pacific contributes to economic surveillance and research, leads the IMF’s involvement in regional cooperation, manages regional capacity building programs, and promotes the understanding and two-way dialogue of the IMF in the region. Preface 6 Contents 8 About the Authors 9 Abbreviations 17 Welcoming Remarks 18 Session 1: Financial System Stability and Competition in the Financial Industry 21 Address by Session Chair 21 Financial System Stability and Competition: Do They Complement or Clash? 22 Motivation 22 Evidence 24 TBTF: Are Current Reforms Sufficient? 26 Where Should Competition Policy Head? 28 Conclusion 28 Navigating the Financial Regulator’s Impossible Trinity 29 Comments to Session 1 34 Competition and Stability Are Two Important Policy Objectives 34 Financial Deregulation and Financial System Crisis 35 Regulations Are Evolving 35 Supervision Is also Changing 36 What Is Most Important Is the Self-Discipline of Bank Managers 37 Deposit Guarantee Scheme and Resolution Fund as a Backstop 37 Shadow Banking Sector 37 Conclusion 37 Current Regulatory Environment 38 Strategies for Financial Institutions 39 Our Views on Our Competition 39 Open Floor Discussion 42 References 46 Keynote Speech: Current Situation, Challenges and Future of Regional Finance in Japan 47 Present Situation of Japan’s Regional Finance 47 Challenges for Regional Finance 50 Future of Regional Finance 53 Session 2: Finance to SMEs through Banks, Capital Markets and Other Financial Methods 57 Address by Session Chair 57 Is Finance a Binding Constraint for SME Participation in Trade? 58 Finance to Small and Medium-Sized Enterprises in Japan and Asia 65 Comments to Session 2 71 Open Floor Discussion 80 References 83 Session 3: Financial Inclusion and Financial Education 84 Address by Session Chair 84 Financial Education and Financial Inclusion 85 Developments of Financial Education in Japan 90 Financial Stability and Financial Inclusion 92 Financial Stability and Financial Inclusion (contd) 97 Comments to Session 3 99 Open Floor Discussion 107 References 109 Session 4: Panel Discussion: Finance to Ensure Asia’s Economic Growth 110 Address by Session Chair 110 Unlocking the Small and Medium-Sized Enterprises’ Potential to Promote Financial Inclusion and Susta 111 Presentations by Panelists 116 Asia Will Continue to Be the Growth Center in the Next Few Years 123 Asia Will Continue to Demand Resources to Sustain Its Growth Momentum and Investment Growth Will Remain Robust 125 Financing Asia’s Growth 125 The Middle-Income Trap 126 Strengthening the Financial System to Support Development Beyond the Middle-Income Trap 127 Financial Inclusion/Education 128 Impact of Basel III on Credit Growth of Banks Will Be Significant in Asia at a Time When Credit Is Vital 129 Open Floor Discussion 132 Closing Remarks 135 Front Matter....Pages i-xvii Welcoming Remarks....Pages 1-3 Session 1: Financial System Stability and Competition in the Financial Industry....Pages 5-30 Keynote Speech: Current Situation, Challenges, and Future of Regional Finance in Japan....Pages 31-40 Session 2: Finance to SMEs through Banks, Capital Markets, and Other Financial Methods....Pages 41-67 Session 3: Financial Inclusion and Financial Education....Pages 69-94 Session 4: Panel Discussion: Finance to Ensure Asia’s Economic Growth....Pages 95-119 Closing Remarks....Pages 121-122