Financial structures

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 1. Finance and the economy

Total financial wealth as % of GDP, average of G7 countries, 1980-2015

1200

• Financial wealth tends to

1000
grow w.r.t. GDP
("financialization")
800 • Can finance be "too
much"?
600

400

200

0
1980 1990 2000 2010 2015
Source: Byrne-Davis (2003) and elaborations on OECD

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 2. Financial structure by sector

% Shares of financial assets, G7 average

• Households hold
60 (directly) a decreasing
FIN share
50 • All intermediaries tend
to hold larger share, with
40 "competition" between
banks and others;
BAN
30 • Corporate sector
HOU increasingly engaged in
ROW finance
20
MI • Growing shares of r.o.w.
CORP indicate world financial
10 integration
("globalization")
0 • Slight corrections after
1980 1990 2000 2010 2015 the global financial crisis
Source: Byrne-Davis (2003) and elaborations on OECD

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 Net financial account by sector as % of GDP, G7 average

1980 1990 2000 2010 2015

250
• Typically households
hold a positive NFA,
200 corporate sector and the
public sector hold a
150
negative NFA, financial
100 sector is in balance.
• In the 2000s,
50
"flattening" growth of
0 households' NFA

-50
• After the GFC,
- re-accumulation of
-100 households
- stagnation of firms
-150
Hou Corp Govt. Fin.

Source: Byrne-Davis (2003) and elaborations on OECD

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 3. Financial structure by instruments

Composition of assets of the private sector, G7 average

Mon. Instr. Bank loans Bonds
Equities Int. mkt. instr. Other

100%
8.7 • Developed countries
90% 16.2
display a rather
12.9 18.0
80% balanced structure by
instruments.
70% 11.8 23.0
18.6 • Financial development
60%
has determined a shift
50% 14.0 from monetary and
31.5
19.8 bank instruments to
40%
20.8 market instruments
30% (less liquidity, more
18.7
20%
risk)
32.8
10% 24.2
17.2
0%
1980 2000 2015

Source: Byrne-Davis (2003) and elaborations on OECD

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◼ Instruments/sectors: Firms' liabilities (capital structure)

Classification of capital structure

Bank
Internal Bank loans
instruments
Financial Debt
sources Bonds
External
Market
instruments
Equities

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 Classification of liabilities of firms, G7 average
Bank loans Bonds Equities Other
100%
13.7 16.6 13.5 • Firms diversify their capital
90%
structure across debt/equity,
80% bank/market instruments
70%
44.3 • Financial development has
60% 53.6
shifted capital structures from
50.1
debt to equity, and from bank to
50%
market instruments.
7.7
40%

30% 7.6 8.0

20% 43.5
25.5 24.9
10%

0%
1980 2010 2015

Different classifications (and viewpoints)

Year Debt Equities Bank Market
instruments instruments
1980 51.2 44.3 43.5 56.5
2010 33.1 50.1 25.5 74.5
2015 32.9 53.6 24.9 75.1

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 4. International comparisons
"Bank systems" vs. "Market systems"

◼ Are all financial systems alike?

"Banks" and "Markets" denote two different ways of organizing financial transactions and
creating financial instruments. Do financial systems in different countries differ
along this dimension?
Since the beginning of the XX century, disaggregation of data by countries has shown two
distinct groups according to the relative incidence of "Banks" and "Markets":
−US, UK, Canada, with smaller role of the bank sector and larger share of market
instruments "market systems" ("Anglo-Saxon model")
−Japan, Germany, France, Italy have larger share of the banks sector and bank
instruments "bank systems" ("Continental model")
Is this pattern still relevant today?
− BS vs. MS difference much less marked, only to some extent still present.
− Both types of systems have moved towards market instruments (direct and/or
intermediated) ("Transnational model"),
− This pattern is common to all developed countries. However there are differences of
intensity

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◼ What determines the bank vs. market structure?

Bank systems Market systems

Security markets Thin, less liquidity Thick, more liquid

Credit market Wide, concentrated Limited, dispersed
Financial intermediaries Mainly banks Mainly market intermediaries
Firms in the stock market Few Many
Savers' attitude Liquidity and control Risk and diversification
Capital ownership Concentrated Dispersed
Role of management vs. owners Limited Important
Role of takeovers Very limited Important
Legal system Civil Law Common Law
Legal protection Creditors Shareholders' minorities

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◼ How large is the bank sector?

Bank sector's % share of total assets

UK US CAN JAP GER FRA ITA
60
• Classic classification BS
50 vs. MS still valid (UK is
exception)
40 • But today banks do many
more and different things …
30

20

10

0
1980 2010 2015

Source: Byrne-Davis (2003) and elaborations on OECD

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◼ Are bank instruments important?

Bank and market instruments as % of total assets

Mon. & bank instr. Mkt. Instr.
100%

90%
Bank instruments more
80% important in BS than in
70% MS, but general
tendency towards
60% predominant use of
market instruments
50%
("securitization")
40%

30%

20%

10%

0%
UK-US-CAN JAP-GER-FRA-ITA UK-US-CAN JAP-GER-FRA-ITA
1980 2015
Source: Byrne-Davis (2003) and elaborations on OECD

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◼ Are bank instruments important for households?

Composition of assets of households, 2015

Mon & bank instr. Bonds Equities Mkt int. instr Other

100%

90%
• Households in classic
80% BS hold larger shares
70% of bank instruments
(exp. Japan and
60% Germany)
50% • But growing
similarities (e.g. role of
40% market intermediaries)
30%

20%

10%

0%
UK US CAN JAP GER FRA ITA

Source: Byrne-Davis (2003) and elaborations on OECD

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◼ Are bank instruments important for firms?

Composition of liabilities of firms, 1980 and 2010

• Firms in all countries

80 have moved sharply
JAP80 from bank to market
70 GER80 instruments (most
60
dramatically Japan,
France and Germany).
50 • Capital structures are
FRA80
ITA80 now much more similar.
Bank

40 ITA10 The same holds for the

UK80
GER10 debt/equity structure.
30
UK10 JAP10
CAN80 FRA10
20 US10
US80
10 CAN10

0
20 30 40 50 60 70 80 90 100
Market

Source: Byrne-Davis (2003) and elaborations on OECD

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