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Macroeconomic models currently used by policymakers generally assume that the functioning of financial markets can be fully summarized by financial prices, because the Modigliani and Miller (1958) theorem holds. However, the assumption that this theorem holds is questionable. This paper argues that there are frictions in the market which traditional models based on the Modigliani and Miller theorem fail to take into account in explaining how monetary policy and other shocks are transmitted to the economy and points to new directions. A comprehensive macroeconomic model should incorporate financial market interactions to enhance the understanding of the transmission mechanisms of monetary policy and other shocks. If market dynamics are not taken into account, macroeconomic models used by policymakers may point to wrong policy choices. Motivated by the lack of assessment of the recently launched financial reforms, deregulation, consolidations, financial innovations and joint payment systems, the paper assesses the process of monetary transmission mechanism by investigating evidence of a bank lending channel in SADC during the period 1990–2006 using data from the banking sector. Data from a panel of banks is used to identify shifts in the loan supply curve in response to changes in monetary policy using a vector autoregression (VAR) model. Although the results are mixed the paper generally reports the existence of a bank-lending channel in all SADC countries in the sample. The take-off point for monetary policy effects differs from one country to another. [ABSTRACT FROM AUTHOR]

This paper aims to assess qualitatively and quantitatively the level of resilience of the financial sector in the CEMAC sub-region to macroeconomic shocks and highlight the financial policies that could be implemented. For this purpose, a descriptive analysis of the CEMAC sub-region banking sector, followed by a panel-based econometrics study has been undertaken. The main result from the analysis is that the banking sector of CEMAC is relatively vulnerable to macroeconomic shocks. Accordingly, the decrease of GDP per capita growth rate, long-term financing and real exchange rate as well as the increase of interest rate leads to lower bank provisions. Lower levels of short-term financing induce a lower level of net income commission, while the change in interest rates is an increasing factor. The influence of changes in interest rates on bank's interest margin remains ambiguous. These results confirm the necessity of taking into account the existence of macroeconomic shock constraints in the implementation of financial policies in the sub-region. The paper is original in the manner that it bridges some knowledge gaps of shock management in the monetary zone. It offers policymakers two main insights: the potential rewards for timely intervention to mitigate potential shocks and the need for better control for the credibility and sustainability of the banking system. [ABSTRACT FROM AUTHOR]

This paper investigates the effects of market-based financial sector reforms on the competitiveness and efficiency of commercial banks, and economic growth, in Zambia. The results show that reforms adopted in Phase II (strengthening of regulatory and supervisory, payments and settlements, and financial operations frameworks) and Phase III (implementation of a comprehensive financial sector development plan) had significant positive effects on bank cost efficiency. Macroeconomic variables such as per capita GDP and inflation were insignificant. Further, using an endogenous growth model in which industrial production is a proxy for GDP growth, it was found that bank cost efficiency, financial depth, Phase II and III financial sector reforms, the degree of economic openness, and rate of inflation were significant determinants of economic growth. Phase II policies and the inflation rate have negative effects while the rest of the variables have positive effects on economic growth. Some plausible policy lessons are offered. [ABSTRACT FROM AUTHOR]

Since 1991, Tanzania has made important improvements in reforming its financial sector, dismantling the state-dominated banking sector and allowing foreign bank entry. Despite this, the banking industry is still concentrated with low accessibility to financial services. Large foreign banks dominate the financial landscape, preventing competitive dynamism to permeate the sector. This paper analyses the competitive nature of the Tanzanian banking industry from 2004 to 2008. Utilizing a rich bank level data set, we employ the Panzar-Rosse methodology to compute the competitive index, taking into account risk, efficiency, regulatory and macroeconomic factors. The results show that banks in Tanzania earned their income under conditions of oligopolistic conduct. Moreover, the competitive index derived from an interest revenue equation was not significantly different from that obtained using an aggregate revenue measure. This suggests that the degree of contestability from traditional intermediation activities approximates overall bank behaviour. The overall message is that greater market contestability can be achieved by adopting measures aimed at stimulating competitiveness in the banking sector, including consolidating gains on the macroeconomic front and allowing more foreign bank entry so as to increase the spread of banking services. [ABSTRACT FROM AUTHOR]

This study examines the relationship between interest rate spreads in the Ghanaian banking industry and variables that reflect convergence/divergence between managerial goals and corporate goals of which the key variables are executive compensation and bank ownership structure. Using data covering the period 1999-2011, this study employs a panel regression to examine how agency factors affect interest rate spreads in Ghana. The results of the study indicate that executive compensation is associated with higher net interest margins, suggesting that managers operate on higher margins since they can extract excess rents. The findings of the study also show that asset size, the level of concentration in the banking industry, the level of capital held by banks, the reserve requirement, and the level of inflation all positively contribute to the observed high interest spreads. Our results are robust to the control of several bank-specific, industry-specific, regulatory and macroeconomic factors. [ABSTRACT FROM AUTHOR]