GLOBAL financial DEVELOPMENT REPORT 2013
b e n c h m a r k i n g f i n a n c i a l s y s t e m s a r o u n d t h e w o r l d
Figure 1.8 Financial Systems: 2008–10 versus 2000–07 (Financial Markets) a. Depth Average 2008–10 100 90 80 70 60 50 40 30 20 10 0 0 10 20
30
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b. Efficiency
60
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90
100
Average 2008–10 100 90 80 70 60 50 40 30 20 10 0 0 10 20
30
Average 2000–07 c. Access Average 2008–10 100 90 80 70 60 50 40 30 20 10 0 0 10 20
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40
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70
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Average 2000–07 d. Stability
70
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Average 2000–07
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Average 2008–10 100 90 80 70 60 50 40 30 20 10 0 0 10 20
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60
Average 2000–07
Source: Calculations based on the Global Financial Development Database.
dominated by large banks, and in some ways has become even more bank-centric during the recent period of rapid credit growth.
The “bright” and “dark” sides of financial systems The data from the Global Financial Development Database can be used to examine the notion that growth of financial systems may seem explosive. To some extent, this notion reflects the inadequacy of some of the available proxies for financial systems. For instance, in the case of the United Kingdom, the nominal value-added of the financial sector (as measured in the System of National Accounts) grew at the fastest pace on record
in the fourth quarter of 2008, around the Lehman failure. On the surface, it may seem as if the U.K. financial sector underwent a “productivity miracle” from the 1980s onward, as finance appeared to rise as a share of GDP despite a declining labor and capital share. However, a decomposition of returns to banking suggests that much of the growth reflected the effects of higher risk taking (Haldane, Brennan, and Madouros 2010). Leverage, higher trading profits, and investments in deep-out-of-the-money options were the risk-taking strategies that generated excess returns to bank shareholders and staff. Subsequently, as these risks materialized, the “miracle” turned into a mirage.
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