US Tops Financial Development
Index Despite Subprime Woes

The United States and the United Kingdom still rank as the world�s financial hubs despite the current turmoil in the western financial markets that followed the subprime credit crisis in the US and its extended western markets, says a WEF report on financial markets.

The United States and the United Kingdom came out on top of the World Economic Forum�s Financial Development Index, ranking first and second, despite the financial turmoil in the US that threatens to extend beyond Western financial markets to Asia and beyond.
The index, based on the fundamental strengths in the broader financial systems of individual economies, looks beyond the current financial strengths of countries.
The breadth of measures captured in the Index validate the collective strength of financial intermediaries in both countries, including banks, investment banks, insurance companies, as well as robust equity, bond and derivatives markets, WEF said.
The world�s first Financial Development Index is a rigorous, comprehensive analysis of financial systems and capital markets in 52 countries that analyses key drivers of financial system development and economic growth in developing and developed countries.
The United States narrowly edged the United Kingdom to take the top position in the Financial Development Index. The US and the United Kingdom have close rankings, outstripping the remaining countries in the top 10 bracket Germany, Japan, Canada, France, Switzerland, Hong Kong SAR, Netherlands and Singapore.
The Financial Development Report 2008, which promotes the full potential of financial systems to drive economic growth in developing countries, provides a ranking of 52 of the world�s leading financial systems through which countries can benchmark their performance and evaluate 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, in assessing the complex financial systems of the 52 countries studied.
An important and unique measure captured by the Index includes the degree to which businesses feel they can easily access capital.
The report draws on data taken from a variety of publicly available sources as well as the World Economic Forum�s Executive Opinion Survey, a compre-
hensive annual survey conducted by the World Economic Forum with its network of Partner Institutes (leading research insti-
tutes and business organisations).
Areas of potential concern to the sustained pre-eminence of these two financial systems � beyond the current acute issues of financial stability � include such factors as distortionary tax policies in the United States and the high cost of doing business in the United Kingdom.
Some countries, such as Mexico and Peru, perform better with respect to foundational requirements of sound regulation and the low cost of doing business; yet they have not been able to fully transform these strengths into robust financial intermediaries and markets.
China and Egypt do not seem to demonstrate an ease of access to capital that is commensurate with the overall depth of financial assets in their countries. By contrast, the United Arab Emirates seems to provide strong access to capital for its businesses despite a relatively lower ranking with respect to its depth of financial assets.
�The Index is an invaluable tool in understanding the strengths and weaknesses of different countries� financial systems  and how to improve them to drive economic growth. The Index is intended to serve as a basis for discussion about financial system development and how countries can use financial system reform to drive economic growth, and provide capital and opportunity to those who most need it,� said Nouriel Roubini, Professor of Economics and International Business, New York University, and Chairman, Roubini Global Economics Monitor, who was the lead academic on the project.
The Financial Development Report also drew from its industry partners with particular contributions from AIG, Barclays Capital, Lloyds and Standard Chartered Bank.
�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,� WEF said.
An important and unique measure captured by the Index includes the degree to which businesses feel they can easily access capital � a measure which, interestingly, does not always correspond to the total size and depth of financial assets in the countries included in the Index.

Looking Beyond Subprime
The report comes just a few days after the US government took over two huge financial institutions, mortgage giants Fannie Mae and Freddie Mac, in one of the largest government interventions in the financial sector in history.
The index �looks beyond� the current turmoil in the US and UK �to discern fundamental strengths in their broader financial systems,� the WEF said.
The report ranked 52 countries on factors such as the regulatory environment, financial stability, the size of banks and non-bank financial companies, and the liquidity of stock and other markets.
One goal of the index is to measure the ease with which companies can obtain capital in a country, the WEF said.
The study said the UK debacle over Northern Rock was caused by the lack of coordination and proper information exchange between the financial authority, the Bank of England, and the UK Treasury.
Germany ranked third, followed by Japan, Canada and France. Switzerland, Hong Kong, the Netherlands and Singapore rounded out the top ten.
Nigeria, Ukraine and Venezuela were in the bottom three spots on the list. Venezuela scored low on a range of factors, including insufficient protection of property rights, taxes, and the cost of doing business.
The WEF hopes the annual index will help emerging economies develop their own financial systems.
Given the current upheavals, �it is easy to forget the benefits that the development of global financial systems and increased capital flows have conferred upon other parts of the world,� Klaus Schwab, Executive Chairman of the WEF, wrote in the report.
Several financial companies, including American International Group Inc. and a unit of Barclays Plc., provided advice on the report. Nouriel Roubini, an economist at New York University, helped design the index, the group said.
India Ranked Low
India has been ranked at the 31st position in the Financial Development Index, despite robust performance of its financial markets and non-banking institutions.
�While India delivered solid results in terms of its financial markets, particularly foreign exchange and derivatives, its banks appeared hamstrung by lack of size, low efficiency and poor information disclosure,� the financial development report said, adding that despite the lacunae the banking system is stable due to sizable capital buffers.
India came in at 31st in terms of its overall ranking, while China is at the 24th position. The other BRIC peers Brazil and Russia are at the 40th and 36th position respectively.
�Emerging markets such as China and India that have been primary drivers of global economic growth in the new millennium have yet to see the extent to which �decoupling� truly exists and if their economic expansion can continue independent of the financial trauma plaguing the US and other developed countries,� the report added.
New York�s status as the world�s leading financial centre has been challenged only by London. The WEF study shows that the health of the British financial system is equal to the American system.
WEF plans to present the report to world bankers and regulators in the next few months.

Nigeria At The Bottom
Despite the recapitalisation of the nation�s banking system, Nigeria�s financial system has been ranked among the lowest on the scale of financial systems world over.
Despite the Bankers� Magazine�s ranking of some Nigerian banks among the world�s strongest 1000 financial institutions, Nigeria�s financial system came third to the last on the latest WEF ranking of 52 countries.
The ranking shows that Nigeria�s banking system ranks 50th, Ukraine 51st and Venezuela 52nd, the last on the list. South Africa ranked 25th on the list, suggesting that Nigeria is the giant of Africa by declaration and South Africa the giant of Africa by economic and financial indices.
By implications, Nigeria is still far away from the Millennium Development Goals (MDGs) which are supposed to give hope to alleviation of poverty and hunger which affect millions of Nigerians.

 

   

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