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This practice guide is primarily intended as a reference and guidance for emerging market economies in their migration to a formal macroprudential policy framework. It relies largely on the existing wisdom, knowledge, and experience and was written with the intention of assisting policy makers (and the World Bank staff working with these authorities) in the implementation of macroprudential policy frameworks in jurisdictions with the following characteristics representative of a typical emerging market and developing economy: 1) a simple and bank-dominated financial system where other financial sector segments are much smaller, but growing; 2) banking supervision function is within the central bank; 3) financial sector regulation/supervision is not integrated; 4) uncertain availability of quality data. A macroprudential policy framework is not a silver bullet for safeguarding financial stability. It is also useful to highlight that a macroprudential policy framework cannot take the place of other public policy frameworks. While pursuing macroprudential policy to build a more resilient financial system, authorities should also take into consideration the significant financial development needs that may exist in their respective jurisdictions. This Practice Guide has been structured in a logical sequence that mirrors implementation. The second and third sections are laid out to clarify and provide some context to the concept of a macroprudential approach to supervision and discuss the institutional framework. The fourth and fifth sections deal with the operational aspects of macroprudential policy framework that are timely detection of systemic risks using early warning systems and addressing the buildup of systemic risks with macroprudential policy instruments.

Over the past two decades, foreign banks have become much more important in domestic financial intermediation, heightening the need to understand their behavior. We introduce a new, comprehensive database, made publicly available, on bank ownership (including the home country of foreign banks) for 5,324 banks in 137 countries over the period 1995-2009. We document large increases in foreign bank presence in many countries, but with substantial heterogeneity in terms of host and banks' home countries, bilateral investment patterns, and bank characteristics. In terms of impact, we document that the relation between private credit and foreign bank presence importantly depends on host country and banks' characteristics. Specifically, foreign banks only seem to have a negative impact on credit in low-income countries, in countries where they have a limited market share, where enforcing contracts is costly and where credit information is limited available, and when they come from distant home countries. This shows that accounting for heterogeneity, including bilateral ownership, is crucial to better understand the implications of foreign bank ownership.

The Little Data Book on Financial Development 2014 is a pocket edition of the Global Financial Development Database, published as part of the work on the Global Financial Development Report 2014: Financial Inclusion. It contains 38 indicators of financial development in 205 economies, including measures of (1) financial depth, (2) access, (3) efficiency, and (4) stability of financial institutions and markets. Additional variables, historical observations, and links to underlying research are available at www.worldbank.org/financialdevelopment.

A significant body of literature has examined the role of traditional macroeconomic and institutional factors in determining the equity risk premium. However, these studies exclude essential financial variables, such as financial globalization and financial sector development. Hence, this paper examines the individual and joint explanatory power of financial globalization and financial sector development for equity risk premium parameterization in 42 EDEs using data collected from 2000 to 2021, and analyzed using the PCSE, with the DKSE estimator employed for robustness analysis. The empirical findings demonstrate that financial sector development can lower equity risk premiums in EDEs. In contrast, financial globalization is weak in reducing the equity risk premium. Furthermore, empirical results suggest that financial sector development can mitigate the increasing impact of financial globalization on equity risk premiums. Regarding the control variables, inflation emerges as a major driver of equity risk premium. However, economic growth, a strong external position, domestic savings, and political stability can help reduce the equity risk premium. Therefore, policymakers should pursue financial reforms aimed at expanding the domestic capital base, ensuring sound macroprudential supervision, and maintaining financial system stability. Additionally, sound monetary and fiscal policies should be implemented to promote economic growth and control inflation.

We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when domestic banks are better than foreign banks at monitoring soft information customers, foreign bank entry may hurt these customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetration, and that foreign banks should have a less risky loan portfolio. In the empirical section, we test these predictions for a sample of lower income countries and find support for the theoretical model.

The broad purpose of this study is to empirically explore the impact of globalization and financial development on environmental pollution by carbon (CO 2 ) emissions in the six Middle East and North Africa (MENA) countries using balanced panel data from 1971 to 2015. We also aimed to test the legitimacy of the environmental Kuznets curve (EKC) hypothesis for this region. The fixed-effects approach preferred by the Hausman specification test is used to estimate the empirical model, and the feasible generalized least squares (F.G.L.S.) estimator is employed to cope with any issue of heteroscedasticity and serial correlation. This study found that globalization and financial development have adverse and significant effects on environmental degradation and affirm the legitimacy of the EKC hypothesis for these countries. The finding of this study suggests that the governments of MENA countries should design and implement appropriate policies for strengthening the renewable sources of energy like wind, solar, bio-fuel, and thermal to decrease CO 2 emissions and boost sustainable economic development. The policymakers should focus on the efficiency of institutions and enhancement of energy-saving projects in this region.

We examine the determinants of financial sector development in Asia and the Pacific from 1995 to 2011. In terms of economic growth, over the last twenty years the region has outperformed other parts of the world and has also experienced major developments in its traditionally bank-dominated financial system since the 1997 Asian financial crisis. We apply the dynamic generalized method of moments to a panel data set of twenty-six economies in the region. The estimations were done for the whole panel as well as for subpanels of developed and developing economies. We find that better governance and institutional quality foster financial sector development in developing economies while economic growth and trade openness are key determinants of financial depth in developed economies.

This edited volume contains eight studies of financial sector challenges in Africa that served as background studies for Financing Africa: Through the Crisis and Beyond. One of the major challenges for African financial systems is to expand financial services to a larger share of the population. The chapters in this area cover microfinance in Africa, the role of technology, reforms of payment infrastructure, and financing agriculture. Two chapters cover challenges in increasing long-term finance; one covers housing finance and the other the role of sovereign wealth fund. The book also contains a detailed discussion of bank regulation and supervision, especially in light of the current regulatory reforms in Europe and North America. The final chapter provides a political economy perspective, discussing the conditions for activist government policies in the financial sector.

This paper aims to investigate the effect of geopolitical risks on financial development (measured by domestic credit to the private sector) in a panel dataset of 18 emerging markets over the period 1985-2018. The results from the fixed-effects estimations indicate that an increase in geopolitical risks leads to a lower level of domestic credit to the private sector. The findings from the bias-corrected least-squares dummy variable estimations also confirm that geopolitical risks impacts negatively on domestic credit to the private sector. In terms of controls, we have found that per capita income and broad money are positively associated with domestic lending. Further, external imbalances were found to suppress domestic credit in emerging markets. Various additional controls were then included to address potential omitted variable bias. Moreover, we utilized multiple robustness checks, such as excluding countries from different continents as well as extracting outlier observations. According to the findings from these robustness checks, the negative impact of geopolitical risks on domestic lending is statistically and economically robust. To the best of the author’s knowledge, this paper is the first to provide evidence for the negative impact of geopolitical risks on financial development in emerging markets, the economic performance of which can slow down as competitiveness deceases due to concomitant threats.

This study investigates the dynamic linkages between financial sector development, financial inclusion, credit supply, and economic growth in East Africa, drawing on financial intermediation theory, endogenous growth and finance–growth nexus models. It examines how improved financial infrastructure enhances credit access and inclusion, thereby influencing long-term growth. Using annual panel data from 1990 to 2023 for Burundi, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, and Uganda, composite indices for financial development, credit supply, and inclusion were constructed via Principal Component Analysis. Dynamic heterogeneous panel models, including pooled mean group, mean group, and dynamic fixed effects were applied, with robustness checks using fully modified ordinary least square, canonical cointegration regression, feasible generalized least square and Dumitrescu and Hurlin causality tests. Results show financial development significantly boosts inclusion and credit in the long run, with credit supply positively linked to growth, though high lending rates constrain expansion. Causality test reveals a long-run unidirectional link from financial development indicators to growth, with no short-run effects. Policy implications highlight deepening reforms, raising incomes, and regulating interest rates and public spending to foster inclusion and sustainable growth, while addressing regional disparities and structural barriers.