Impact Story
Rethinking the Role of the State in the Financial Sector
The global financial crisis resulted in renewed interest in the role of state-owned financial institutions (SOFIs), and especially public banks. They remain systemically important in lower- and middle-income countries and are key players in local and international capital markets.
The old debate over whether state ownership is good or bad for financial stability and development has given way to new, more practical discussions on how public banks can better address market failures and sustainability and improve their governance and management (for a recent discussion see this blog). There are also attempts to make state ownership more dynamic, and to create new ownership arrangements that are designed to achieve better social and commercial results. Public banks are also becoming key actors in mobilizing climate-related investments.
For the World Bank to enhance consistency in its approach to support public banks, F4D has kicked off the analytical work to generate more granular and comparable data on public banks, improve diagnostic tools, and build consensus on a common approach to public banks’ reforms.
F4D’s SOFIs: Stability, Sustainability and Inclusion grant aims to generate knowledge to inform the World Bank advisory and lending project design, including benchmarking for client countries seeking to reform their SOFIs and development finance institutions.
Activities include developing a green module for public banks and a supporting diagnostic tool set, updating the Role of the State Technical Note under the Financial Sector Assessment Program (FSAP) to enhance the way the World Bank assesses public banks, and a database with a set of indicators to identify the magnitude of the state in the banking sector, and to cross-compare practices and trends. To complement these activities, a position paper will be produced to offer guidance for policymakers and World Bank teams on the application of international good practice to the public banks.