1 Giuseppe Cinquegrana Researcher National Accounts directorate Istat OECD Working Party - Paris, 30 November 2010 Debt and net financial wealth: a comparative analysis for some European countries

2 Bank oriented vs. Market oriented Analysis on Financial Accounts for some European countries Model of Financial System

3 Bank oriented Gershenkron, 1962 Universal banks have carried out a crucial role in the economic development process in the nineteenth century (see Italy and Germany) Model of Financial System

4 Bank oriented Diamond, 1984, Mayer, 1988, Levine, 1997, 2003, Financial intermediaries have a fundamental role in overcoming market failures due to the asymmetric information. By monitoring and screening the firms projects during many years, banks are able to assess and prevent opportunistic behaviours related to adverse selection and to moral hazard problems. Model of Financial System

5 Market oriented new view Gurley and Shaw (1955) Starting from the portfolio risk diversification theory, they identify the crucial role of finance in the risk selection and asset allocation on behalf of the investors. Also the degree of development and of the innovation technology of the economy determines the model of financial system. Model of Financial System

6 Law finance approach The relationship between finance and growth has to be analyzed taking into account the different legal traditions Common Law Civil Law

7 Common law historically oriented to a greater protection of the holders of property rights towards the government public companies and widespread shareholding governance conflicts: shareholder / manager very liquid financial markets are, in effects, the main protection for shareholders Market Oriented Financial System Model of Financial System

8 Civil Law lower degree of protection of the private sector firm ownership more concentrated governance conflicts: majority shareholder / minority shareholder a bigger cost for the firms to obtain funding directly on the financial market, because of the high risk premium on the invested capital demanded by minority shareholder Bank Oriented Financial System Model of Financial System

9 FIR: Financial Interrelation Ratio measure of the degree of financial intensity of an economic system the financial assets of the whole economy the wealth of the whole economy Goldsmiths ratios

10 FIN: Financial Intermediation Ratio measure of the degree of financial intermediation of an economic system the liabilities of the Financial Corporations the sum of the liabilities of all the other sectors Goldsmiths ratios

11 CIR: Credit Intermediation Ratio ( Capelle-Blancard et al., 2006 ) measure of the degree of banking intermediation on the whole financial intermediation in an economic system the loans granted by the Financial Corporations the sum of the liabilities issued by all the other sectors Other Financial indicators

12 NFIR: Net Financial Interrelation Ratio the net financial wealth Gross Domestic Product at current prices Other Financial indicators

13 Financial Accounts (ESA95) European Monetary Union United Kingdom Source: EUROSTAT, OECD, OFFICE FOR NATIONAL STATISTICS UK Analysis and data

14 Total Economy S1 Non Financial Sector S11 Financial Sector S12 General Government S13 Household S14 Rest of the World S2 Source: EUROSTAT, OECD, OFFICE FOR NATIONAL STATISTICS UK Institutional Sector ESA95

15 Financial Interrelation Ratio (%), FIR, by European country

16 Financial Intermediation Ratio (%), FIN, by European country

17 Credit Intermediation Ratio (%), CIR, by European country

18 Net Financial Interrelation Ratio (%), NFIR, Private Non Financial Sector (S11+S14) by European country

19 Net Financial Interrelation Ratio (%), NFIR, Household Sector (S14) by European country

20 Financial liabilities on GDP (%) of the whole Non Financial Sector (S11+S13+S14) by European country

21 Financial liabilities on GDP (%) of the Private Non Financial Sector (S11+S14) by European country

22 Financial liabilities on financial assets (%) Household Sector (S14) by European country

23 Thanks OECD Working Party - Paris, 30 November 2010