Corporate Governance and Access to Finance - ESBG

In other words, sustainable financial stability requires in the long term adeep and efficient financial system. And a financial system that excludesample segments of the population cannot be considered either efficientor stable.The idea that the US subprime problems were a result of a financialinclusion process requires in any case important nuances. The factorsbehind the crisis are much more related to wrong incentives in themortgage credits origination process of one particular model of banking(the so called “originate to distribute” model), inadequately supervised,amplified by a complex framework of credit derivatives and structuredproducts, blessed by credit rating agencies and propagated to the rest ofthe world due to the opacity of these products and the negligence in riskmanagement of some of the most important global banks.The experience of many emerging and developing countries shows, onthe other hand, that it is possible to foster Access to Finance whilemaintaining adequate risk controls. Savings banks, cooperatives andmicro-finance institutions in these countries have been able to contributeto financial deepening while at the same time fostering financial stability.In fact, in contrast with the pro-cyclicality of commercial banks – which tendto inflate the credit bubble in the good times and exacerbate the creditcrunch in the bad times –, institutions whose objective is facilitatingAccess to Finance are more stable in their policies and less sensitive to thechanging mood of global financial markets. This tends to smooth creditfluctuations and contributes to financial stability. As Chris De Noose,the WSBI Managing Director, recently stated, most WSBI member bankshave been generally resilient to the financial crisis, and “the focus onsupporting local markets and the real economy leads to a long-termvision and partnership which greatly reduces the impact of the volatilityof financial markets on the institutions. At the same time, though, theeconomic crisis that has affected the world has of course had an impacton the activities and life of our core clientele – households and smallentrepreneurs. Our banks do their utmost to provide support in thesedifficult times.”As a result of this crisis, a program of reforms of international financialregulation is under discussion, to improve risk management andstrengthen the capital base of financial institutions. These reforms are notaddressed at small institutions – in developing and developed economies– specialised in Access to Finance, since these institutions were notaffected by the failures that led to the crisis.67