Discussion:Retail Finance a Practical Angle

1
DiscussionRetail Finance a Practical Angle

• ECB/CFS conference
• Prague, 21 October 2008

Utrecht School of Economics, Utrecht University
2
Structure

• Discussion of methodology of three papers
• Nicole Jonker and Anneke Kosse European payment
  market from Dutch perspective
• Markus Eller Private credit CEE countries
• Dubravko Mihaljek Financial stability of
  emerging countries

3
1. Jonker and Kosse(2008)

• Four questions
• What payment instruments do the Dutch use now?
• What is their attitude towards payment across
  borders?
• Which factors affect behaviour and perception
  regarding cross-border payments?
• What do the Dutch think about advantages and
  disadvantages of SEPA?

4
1. Jonker and Kosse(2008)

• Data Household dataset of around 1700 households
  (Survey)
• Model (Ordered) probit models.
• Results In all these decisions, age , gender,
  net
• income (and frequency of foreign visits) are
  important.
• Furthermore, from questionaire safety, interest
  rate and fee is
• important for attractiveness of SEPA.

5
1. Jonker and Kosse(2008)

• Very useful discussion of the reasons why Dutch
  consumers payment instrument in light of SEPA
• Very nice dataset
• Marketing research for SEPA (or measurement
  before and after introduction SEPA)

6
1. Remarks

• Safety is key, but
• Safety is is very much a subjective perception
• safe is something when everybody does it
• Or is safety one day you will get your money back
• No monetization of switching cost, although price
  factors seem to be very important, (interest
  rates, lower annual card fee) (Icesave very
  interesting in that respect)
• Stated versus revealed preferences

7
1. More Remarks

• Panel characteristics
• More information on risk averse behaviour (type
  of mortgage, stocks)
• Unobserved characteristics

8
2. Markus Eller et al (2008)

• Equilibrium level of private credit to GDP versus
  state of development
• Out of sample versus in sample
• Some countries at equilibrium or above Czech
  republic and Slovakia, Croatia, but overshooting
  is not that much (earlier version), now Latvia
  and Bulgaria overshooting
• Most countries there is a lot of room to grow

9
2. Remarks

• Pro
• Cotarelli et al. (2005), JBF
• Great effort in robustness checks
• Different variables
• Different groups of countries
• Different periods

10
2. Remarks

• Con
• I miss a clear (structural) model
• Test for exogeneity (house prices)
• SVAR model, with restrictions
• How similar are these OECD countries? Stability
  of parameters if you would focus on CEE countries
• Change of results shows sensitivity of analysis

11
3. Dubravko Mihaljek (2008)

• Analyses of some financial stability implications
  of increased capital flows in emerging countries
• Gross flows are important, Structure of inflow
  and outflow is very different (FDI versus equity
  and debt)
• Really great stuff is in the policy response
  section

12
3. Policy implications

• Challenges for capital inflows
• Greater exchange rate flexibility
• Reduced interest rates
• Fiscal tightening
• Relax control on capital inflow and outflow
• Financial stability
• Underestimation of build-up credit risk
• Volatility in bank intermediated capital inflows
• Capital controls
• Supervisor issues
• Home and host country supervisor issues

13
3. Remarks

• Questions
• where do these imbalances come from.?
• Explain the real world a little bit
• What are the really important risks?
• Exchange rate risk (Hungary) important?
• Fiscal constraints have become more important,
  what is the picture there for CEE countries?
• Importance of supervision host versus home.
• Contagion risk versus local system risk
• European approach necessary, are capital
  injections possible

14
4. Conclusions

• These are all very fine papers
• I enjoyed to read them