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Forum's Financial Development Report shows global financialcentres' lead is weakening
- Signs of weakness emerge among many global financial centres following crisis
- Developing countries show comparative financial stability, but also potential for improvement in other areas
- Report analyses 55 financial systems and capital markets around the world
- Report benchmarks financial system development to support economic growth in emerging markets
- The report, rankings (PDF and excel) and country highlights can be downloaded at: http://www.weforum.org/en/initiatives/gcp/FinancialDevelopmentReport/index.htm
The world’s largest economies took the biggest hit in the World Economic Forum’s second annual Financial Development Report released today. Global financial centres still lead in the report’s Index, but the effects of financial instability have pulled down their scores compared to last year. The United Kingdom, buoyed by the relative strength of its banking and non-banking financial activities, claimed the Index’s top spot from the United States, which slipped to third position behind Australia largely due to poorer financial stability scores and a weakened banking sector.
The Financial Development Report ranks 55 of the world’s leading financial systems and capital markets. It analyses the drivers of financial system development and economic growth in developed and developing countries to serve as a tool for countries to benchmark themselves and establish priorities for reform.
The rankings are based on over 120 variables spanning institutional and business environments, financial stability, and size and depth of capital markets, among other factors.
The financial crisis was acutely felt in most global financial systems and caused most countries’ scores to drop significantly compared to 2008.
“The change in scores does demonstrate the implications of the downturn on our assessment of the long-term development of financial systems,” said Nouriel Roubini of New York University and Chairman, RGE Monitor who is the lead academic on the report.
Germany and France suffered a heavy fall in overall scores that pulled them out of the top 10. They dropped in the rankings but demonstrated financial stability scores that were significantly higher than the United Kingdom and US. Australia showed particular strength this year, a trend that is echoed in many Asia Pacific economies.
The breadth of factors covered in the report means that countries with high financial instability scores like the United Kingdom and US could still achieve a high relative ranking in the Index due to other strengths.
"We hope this report will provide some insight as to how the financial crisis has affected the world’s major financial systems. It draws attention to the diversity of factors beyond financial stability that must be addressed to support the role of financial systems in driving economic growth. The United Kingdom and US may still show leadership in the rankings, but their significant drops in score show increasing weakness and imply their leadership may be in jeopardy.” said Kevin Steinberg, Chief Operating Officer, World Economic Forum USA.
Some developing countries performed well in the financial stability section of the Index. Chile came in third while Malaysia, Mexico and Brazil are all in the top 15. Norway and Switzerland took the top two spots in this category.
“Developing countries exhibited a relatively strong showing in the financial stability pillar of the Index. For some, this is the result of learning from the mistakes of past financial crises, while for others it may reflect the relative lack of complexity and global integration of their financial systems,” said Co-Author Nouriel Roubini.
Developing countries also earned many of the top spots with respect to commercial access, which measures the availability of capital through such means as commercial loans, IPOs and venture capital.
Developing countries, however, did not score nearly as well in terms of retail financing provided to individuals and small enterprises through savings and demand accounts, microcredit, ATMs and point-of-sale financial services.
“One possible explanation of these figures is that big corporations in developing countries can access global financial markets, whereas smaller businesses struggle to get the same access,” said James Bilodeau, Co-Author of the report, and Head of Emerging Markets Finance at the World Economic Forum USA.
Changes to this year’s Index include improved data on retail, financial access such as bank account penetration, microfinance and point-of-sale access. Refinements to measures of financial stability were also made.
The Industry Partnership Programme of the World Economic Forum, under whose auspices this work was undertaken, provides a platform for the world’s leading companies to define and address critical issues. The Financial Development Report benefited from the guidance and support of its Industry Partners with particular contributions from Barclays Capital, EFG Hermes, JPMorgan, Standard Chartered Bank and Troika Dialog. It is the culmination of a year-long partnership between the World Economic Forum and academic scholars, industry practitioners, and other distinguished experts and stakeholders.
The report draws on data taken from a variety of publicly available sources such as the World Bank as well as the World Economic Forum’s Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum with its network of Partner Institutes (leading research institutes and business organizations). The Forum’s Global Competitiveness Network, which also sponsors related initiatives such as The Global Competitiveness Report,also supported this work. There is necessarily a lag in obtaining complete cross-country data used to calculate the Index. As successive iterations of the report are published, the long-term effects of the crisis on financial system development will become increasingly clear.
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