The impact of the financial crisis

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18 Νοε 2013 (πριν από 3 χρόνια και 8 μήνες)

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Eisenhower Fellowship


2010 Women’s Leadership Program


University of Iowa

The impact of the financial crisis

October 2010


Agenda

1.
Brief introduction

2.
Brief overview of the EF Program

3.
Brief overview of the financial crisis

4.
Impact of the financial crisis on Africa


Eisenhower Fellowships (EF)


Founded in 1953 as a tribute to Dwight D. Eisenhower
upon his assuming the U.S. presidency


Private non
-
profit ,non
-
partisan organization created by
a group of prominent American Citizens


Mission is to engage mid career professionals from
around the world and enhance their leadership skills


Board of Trustees is chaired by General Colin L Powell
(Retired) and led by its president, John S. Wolf


2010 Women’s Leadership Program


Selected 19 women from different countries


Seven week individualized itinerary of consultations
with senior officials in government, private and other
sectors



Background of the Eisenhower Fellowship

Dwight D. Eisenhower (1890

1969), the 34th President of
the United States, was elected
to the presidency during a
time when the world was still

struggling to regain economic
and political stability after the
devastations of World War II.
Eisenhower, who had been
the Supreme Commander of
the Allied Forces during that
war, and was later the Chief
of Staff of the United States
Army, brought to the
presidency a nearly apolitical
balance between public and
private interests, and between
local and global concerns.
During his presidency, he
sought international peace
and justice and continued to
press for the containment of
communism through global
effort. One of the most highly
respected American
presidents, his service and
leadership spoke to people
throughout the world.



Eisenhower Fellowships


2010 Women’s Leadership Program

Itinerary

Philadelphia, New York, Connecticut, Washington DC, Dallas, Houston, St Louis, Jefferson City,
North Carolina, Iowa, Phoenix, San Francisco, Las Vegas, Boston, Atlanta


Financial crisis


cause, impact
and measures

Regulators, banks, universities

Women in
leadership

Universities


North Carolina,
Harvard, Iowa

Investment bank
and credit rating
agency

Public sector
-

Mayors office,
State Treasurer

Education and
research
-

Universities

Federal reserve
banks and FDIC

State
government and
mayors office

Private sector
-
PwC, Goldman
Sachs

Leadership
summit and
orientation

Seven week program

Slide
4

October 2010

The impact of the financial crisis

My role


Senior Manager in
PricewaterhouseCoopers in Africa
Central


Specialized in providing
professional services to the public
sector (governments and donors)

Services offered


Audit of development projects


Kenya, Uganda, Tanzania


Project and fund management


Somalia and Sudan (MDTF)


Local fund agency services


Eritrea, Uganda, Tanzania


Special Investigations
-

Kenya


Technical assistance
-

Rwanda



Africa

My work in Africa

Slide
5

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

Factors that contributed to the financial crisis

Contributing factors

Growth in foreign capital

Surplus balance of payment and
increase in savings

1

Low interest rates

Low long term interest rates to
stimulate investment

2

Promotion of homeownership by
the federal government

Homeownership
-

investment,
source of property tax and stability

3

Deregulatory measures taken by
Congress and SEC

Placed some derivatives and firms
beyond effective regulation

4

Growth of
securitzation

and
subprime mortgages

Securitization provided capital for
on lending and “reduced risks”

5

Slide
6

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

Demand for new investment opportunities

Demand for new opportunities

Slide
7

October 2010

The impact of the financial crisis

Enormous
Liquidity

Strong global
economic
growth

Low interest
rates

Desire to find new investment opportunities. Best opportunities
were seen in the housing market because:

1.
US government supported home ownership

2.
Mortgage assets considered safe from sharp downturns

3.
Flexible and varied mortgage products attracted more capital


Low interest rates as a result of
the Federal Reserve Board efforts
to keep interest rates low to
stimulate investment


MBS a solution for investors
looking for higher interest rates
and banks to release funds for on
lending


Sub prime loans developed
without a proper regulatory
environment


Housing bubble burst made it
difficult for borrowers to repay
loans




Overview of the crisis

Low interest rates

Demand for higher rates

Financial innovations

Sub prime loans

Housing bubble burst

The financial crisis

Slide
8

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

Role played by different players

Major players

Regulators

Inadequate regulation of sub prime
loans and financial innovations

1

Rating agencies

Rating model based on historical
factors and traditional borrower

2

Accountants and auditors

Interpretation of accounting
standards and proper disclosure

3

Investment banks

Inadequate structures to monitor
financial innovations

4

Banks

Inadequate credit risk analysis and
disclosure of accurate information

5

Slide
9

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

Strengthening measures by different players

Major players

Regulators


federal reserve
banks, FDIC, OCC, etc

Strengthen regulation of sub prime
loans and financial innovations

1

Credit rating agencies

Revisit model and factors for rating
financial instruments

2

Accountants and auditors


FASB, PCAOB, AICPA, etc

Consolidate and simplify accounting
standards and use of fair value

3

Investment banks

Strengthen risk management and
structures over financial innovations

4

Banks and borrowers

Proper credit risk analysis and
disclosure of accurate information

5

Slide
10

October 2010

The impact of the financial crisis


Inadequate risk management controls


Weak board oversight


Overreliance on non core funding sources e.g. brokered deposits


Commercial real estate and land development loan concentration


Rapid loan growth


Inadequate allowance and ineffective methodology


Regulators detecting early warning signs but delaying forceful remedy



October 2010

Slide
11

The impact of the financial crisis

Federal reserve banks


prevalent themes in bank failures


Eliminate coverage gaps and weaknesses


Address systemic risk issues


Strengthen leverage ratios and assess adequacy of capacity and
liquidity buffers


Reduce pro cyclical effects of accounting and reserves


Promote greater market transparency


Align incentives and compensation


Enhance consumer protection oversight including non bank
subsidiaries

October 2010

Slide
12

The impact of the financial crisis

Federal reserve banks


reforming prudential regulation and
supervision


Ability to innovate should not exceed capacity to manage


Risk and control functions should be independent of the business unit


Risk managers should have equal stature


Review compensation


in line with compensation and deferred


Policy makers and regulators should be clear that self regulation has its
limits


Dynamic regulation system that can identity and constrain market
excesses


Global supervision, coordination and communication should reflect
global interconnectedness of markets


All pools of capital that are large enough to be a burden on the financial
system should be regulated


Risk should not be taken out of the system and we should not abandon
financial innovations


October 2010

Slide
13

The impact of the financial crisis

Investment banks


lessons learnt

Eisenhower Fellowships


2010 Women’s Leadership Program

World

Impact of the crisis

Slide
14

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

October 2010

Slide
15

The impact of the financial crisis

Current financial crisis is global and affecting developing
countries

Current financial crisis is more global than any other period of financial
turmoil in the past 60 years

Extent and severity of the crisis began with the bursting of the housing
bubble in the United States in August 2007

In line with previous crisis, the pre crisis period was characterized by:


Surging asset prices, that proved unsustainable


Prolonged credit expansion leading to debt accumulation


Emergence of financial instruments


Inability of regulators to keep up


New


rapid expansion of securitization


Impact of the financial crisis on Africa

Africa

Impact of the crisis

Slide
16

October 2010

The impact of the financial crisis

October 2010

Slide
17

The impact of the financial crisis

Rwanda
-

Kigali

October 2010

Slide
18

The impact of the financial crisis

Eritrea
-

Asmara

October 2010

Slide
19

The impact of the financial crisis

Kenya


Central Province

October 2010

Slide
20

The impact of the financial crisis

Sudan
-

Khartoum

October 2010

Slide
21

The impact of the financial crisis

Tanzania


Arusha

Round 1


The level of financial integration
determined how countries were
affected by the 1
st

round effects.
Most affected include China,
Brazil and Russia


Contagion spread to the capital
markets and confidence levels
dropped. This was especially in
emerging economies


Most countries experienced
exchange rate volatilities


The 1
st

round of effects led to a
rise in uncertainty.



First round effect on developing countries, including Africa

Round 1

Confidence
levels

Exchange
rate

Uncertainty

Round 2

Impact of the crisis on developing countries

Slide
22

October 2010

The impact of the financial crisis

The second round has led to a global
recession which has resulted to a fall
in output, fall in demand and a fall in
commodity prices especially the price
of natural resources. The impact in
Africa include:


Falling exports. (The projected
loss in export revenues for Africa
is US$ 634bn)


Lower fiscal revenues


Shortage of liquidity


Reduction in remittances


Reduced private capital inflows


Reduced FDI and short term
credit


Absence of trade credit



Second round effect on Africa

IMF projections have indicated a substantial fall in the growth rates of developing
countries from 6.25 per cent in 2008 to 3.25 per cent in 2009.


Round 2

Global recession

Fall in demand

Fall in exports

Reduced growth

Impact on Africa

Slide
23

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

Effect of the financial crisis on Africa


Trade flows

Capital flows

Foreign direct


investment

Migrant

remittances

Tourism

Aid flows

Overall impact on Africa


Reduced growth


Shrinking trade


Delayed infrastructure

development


Threat to poverty

reduction



Negative effects were mainly felt through trade and capital flows, investment and
migrant remittances. This has led to reduced growth, shrinking trade,
delayed/cancelled infrastructure development and a threat to poverty reduction and the
MDG agenda.

Effect on Africa

Slide
24

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

October 2010

Slide
25

The impact of the financial crisis

Downside risks of the financial crisis

The downside risks expected from the financial crisis include:


The economic crisis will lead to a financial crisis and ultimately
insolvency of financial institutions


The bailout plans in developed countries will increase protectionism
thereby introducing explicit controls on foreign lending and employment
of foreigners


Untenable targets on debt and fiscal sustainability. Most countries are
likely to violate on agreed targets


Conflict between short term and long term sustainability e.g. on interest
rates and
forex

reserves


Global imbalance

Eisenhower Fellowships


2010 Women’s Leadership Program

October 2010

Slide
26

The impact of the financial crisis

Kenya

On the financial sector:

1.
The effects on the financial sector are not expected to be significant
given:


The weak linkages of our financial institutions with those in
developed countries


Foreign assets are less than 10% of the total commercial bank
assets and the foreign liabilities less than 20% if total bank
liabilities

2.
Credit to the government and the private sector has been expanding
steadily

3.
Kenya has a stable banking sector

4.
Kenya’s reliance on foreign aid is minimal


Eisenhower Fellowships


2010 Women’s Leadership Program

October 2010

Slide
27

The impact of the financial crisis

Kenya


measures taken by the Central Bank

Measures being taken by the Central Bank


Re
-
appraisal of the role and activities of the capital market


Strengthening the coordination of the regulatory institutions including
RBA, CMA


Enhanced the surveillance of banks


Monetary stimuli (reduction of the banks cash ratio)


Regulation of the banking sector


Reviewing the deposit guarantee schemes. The current guarantee is
KShs
. 100,000 and looking at reviewing it upwards.

Eisenhower Fellowships


2010 Women’s Leadership Program

Ways the developed countries can help Africa

Strategies for helping Africa

Boost exports

Pursuing strategies that boost
demand for Africa exports

1

Discourage protectionism

Discourage protectionist practices
in trade and finance

2

Bilateral and multilateral
mechanisms

Increased provision of financing
and grants to African countries

3

Fund programs to reduce
vulnerability

Provide funding for low income
countries

4

Honor pledges

Honor pledged funding for Africa

5

Slide
28

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

Strategies for African countries

Much of the effort must come from African countries

Domestic growth

Rebalance between external and
domestic sources of growth

1

Institutional reforms

Accelerate institutional reforms

2

Conducive environment

Balance between the role of the
state and role of the market

3

Focus on long term growth

Balance between crisis response
and alleviation of structural
constraints to long term growth

4

Prioritize

Give priority to infrastructure, trade
and regional integration

5

Slide
29

October 2010

The impact of the financial crisis

Eisenhower Fellowships


2010 Women’s Leadership Program

October 2010

Slide
30

The impact of the financial crisis

Thank you

Thank you