Journal of Banking and Financial Economics

JBFE No 2/2017

Sovereign Debt Restructurings in Belize: Debt Sustainability and Financial Stability Aspects

Tamon Asonuma, Michael G. Papaioannou, Gerardo Peraza, Kristine Vitola, Takahiro Tsuda


This paper examines the causes, processes, and outcomes of the two Belize sovereign debt restructurings in 2006–07 and in 2012–13, which occurred outside an IMF-supported program. It finds that the motivation for the two debt restructurings differed, as the former was driven by external liquidity concerns while the latter was motivated by a substantial increase in the coupon rates and future fi scal solvency concerns. Despite differential treatment between residents and non-residents, both 2006–07 and 2012–13 debt exchanges were executed through collaborative engagement, due in part to the existence of a broad-based creditor committee and the authorities’ effective communication strategy. However, while providing temporary liquidity relief, neither of the debt restructurings properly addressed long-term debt sustainability concerns. Going forward, the success of the 2012–13 debt restructuring will still depend on the country’s ability to strengthen fi scal efforts and the public debt management framework.


JEL classification: F34, G15, H63
Keywords: Sovereign Defaults; Sovereign Debt Restructuring; External Debt; Inter-Creditor Equity; Serial Defaults.

DOI: 10.7172/2353-6845.jbfe.2017.2.1

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Does persistence in idiosyncratic risk proxy return-reversals?

Harmindar B. Nath, Vasilis Sarafidis



Understanding the return-reversal phenomenon observed to generate large abnormal profits under some stock market trading strategies is of considerable interest in finance. There is also much debate over the use of idiosyncratic risk as a predictor in asset pricing models when it is persistent. This paper, using the Australian data, presents new empirical evidence of return-reversals at the firm level and the existence of an equilibrium state based on robust econometric methodology of panel error-correction model. The method exploits the persistence in idiosyncratic risk and builds on its cointegration with the returns series. Our results reveal the tendency of long-run returns to restore equilibrium, reversals in short-run returns, a slower recovery to equilibrium by small stocks, and while the short-run responses of returns to changes in log book-to-market ratios are positive, their reaction to persistence in idiosyncratic volatility causes the reversal process. The pattern in quantile dependent coeffi cients of short-run idiosyncratic risk-return relationship suggests that (i) the changes in idiosyncratic volatility risk adversely affects the short-run returns of low performing stocks but investments in high performing stocks benefi t from such changes; (ii) the increasing trend in the coeffi cients implies a quadratic relationship in the levels of the two series. The signifi cant marginal effects of changes in idiosyncratic volatility and its one period lagged values on changes in returns at many quantiles support the impact being due to persistence in idiosyncratic risk, and their reversing signs provide an evidence of reversion in short-run returns.


JEL classification: C21; C23; C33; C58; G12
Keywords:Return reversals, idiosyncratic risk, panel cointegration, panel ECM, quantile regression

DOI: 10.7172/2353-6845.jbfe.2017.2.2

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Mauritius: The Drivers of Growth – Can the Past Be Extended?

Katsiaryna Svirydzenka, Martin Petrib



Mauritius’s economic performance since its independence has been called “the Mauritian miracle” and the “success of Africa” (Romer, 1992; Frankel, 2010; Stiglitz, 2011). However, the future growth potential is more uncertain. In this paper, we use growth accounting to analyze the sources of past growth and project potential ranges of future growth through 2033 under various policies. Growth averaged 4½ percent over the past 20 years. Our baseline suggests future growth rates around 3¼ percent, but growth could reach 4–5 percent with strong pro-active policies including (i) improving investment and savings rates; (ii) improving the efficiency of social spending and public enterprise reforms; (iii) investment in education and education reforms; (iii) labor market reforms; and (iv) further measures to reduce bottlenecks and increase productivity. With policies capable of generating 5 percent growth, Mauritius could reach high-income status in 2021, 4 years earlier than under the baseline.


JEL classification: F4; O1; O2; O4; O5
Keywords: Growth, Mauritius, Growth accounting.

DOI: 10.7172/2353-6845.jbfe.2017.2.3

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The European system of financial supervision – regulatory impact assessment

Mariusz Szpringer, Włodzimierz Szpringer



Complexity and uncertainty in the application of the regulations of the European system of financial supervision are due to the fact that its particular elements were implemented over a period of time. First, it was a system of European financial supervision authorities i.e. the European Banking Authority (EBA), the European Insurance and the Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), whose main objective was to coordinate national actions. Then there were established the European Banking Union, including the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), as well as the European Stability Mechanism (ESM), which constitutes also a part of the system of support for endangered banks. Legal interpretation problems are a result of differences in the scope of competences of these entities. For example, there is uncertainty whether the regulations refer to the eurozone or the whole European Union and if they refer to banks only or to other financial institutions as well. An analysis of the SSM, the SRM or the ESM does not always offer a clear answer to questions such as: who, when and using what tools should act; when, for example, the ECB may and should correct the decisions of national supervisors; what is the role of the ESRB, if we take account of the enhanced competences of the ECB in the banking union; if and when banks may question supervisory decisions concerning, for example, establishing a buffer or classifying an institution as SIFI, etc. Similarly, the role of the EBA or the ESM is unclear in the context of the establishment of the banking union, the SSM, the SRM, the ESM and the delegation of power of the ECB and the European Commission to regulatory agencies (Meroni doctrine) or the practice of establishing regulatory agencies outside the bounds of the treaty (Pringle doctrine). Therefore the regulatory landscape in this context requires impact assessment.


JEL classification: G28, K23, L51, N24
Keywords: European banking union, European Central Bank, Single Supervisory Mechanism, Single Resolution Mechanism, European Stability Mechanism, Meroni, doctrine, regulatory impact assessment.

DOI: 10.7172/2353-6845.jbfe.2017.2.4

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Assessing Countries’ Financial Inclusion Standing — A New Composite Index

André Mialou, Goran Amidzic, Alexander Massara



This paper leverages the IMF’s Financial Access Survey (FAS) database to construct a new composite index of financial inclusion. The topic of financial inclusion has gathered significant attention in recent years. Various initiatives have been undertaken by central banks both in advanced and developing countries to promote financial inclusion. The issue has also attracted increasing interest from the international community with the G-20, IMF, and World Bank Group assuming an active role in developing and collecting financial inclusion data and promoting best practices to improve financial inclusion. There is general recognition among policy makers that financial inclusion plays a significant role in sustaining employment, economic growth, and financial stability. Nonetheless, the issue of its robust measurement is still outstanding. The new composite index uses factor analysis to derive a weighting methodology whose absence has been the most persistent of the criticisms of previous indices. Countries are then ranked based on the new composite index, providing an additional analytical tool which could be used for surveillance and policy purposes on a regular basis.


JEL classification: C43, C82, O16, G00, G21
Keywords: Financial inclusion, access and usage of financial services, factor analysis, index.

DOI: 10.7172/2353-6845.jbfe.2017.2.5

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Bank prudential and bank stability– how far do they go

Gerti Shijaku



This paper investigates how bank prudential behaviour affects bank stability, focusing only in the period after the global financial crisis. For this reason, we construct a new composite proxy as a measure for bank stability condition and another one for bank prudential behaviour. Then, we make use of a sample with a set of data for 16 banks operating in the Albanian financial sector over the period 2008 – 2015. The main results provide strong supportive evidence that there exist a strong positive relationship in the prudential – stability nexus, which confirms that prudential behaviour is a key fundamental contributor for bank stability. We also used a quadratic term of the prudential indicator to capture a possible non-linear relationship between bank prudential behaviour and stability, but found no supportive evidence. Finally, macroeconomic conditions are also found to be crucial for bank stability. Similarly, improving operational efficiency and capital structure boost bank stability.


JEL classification: C26, E32, E43, G21, H63, L51

Keywords: Bank Stability, Prudential behaviour, LLP

DOI: 10.7172/2353-6845.jbfe.2017.2.6

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