Outcomes in financial sectors of countries that borrowed from the Bank are generally better than in countries that did not borrow for financial sector reforms. However, even in countries that borrowed, financial sectors remain relatively shallow and private sector access to credit remains low. Bank lending for reforms has not been enough to achieve the ultimate objective of well-developed financial systems.

• Findings and Recommendations
• Selected Figures
• Official Responses: World Bank Management | CODE Chairman
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• Financial sector outcomes in countries that borrowed from the Bank for financial sector reforms are generally significantly better than in countries that did not. Nevertheless, in most of the countries, although the trend has been in the right direction, the financial sectors remain relatively shallow, and private sector access to credit remains low.
  
  
• The objectives of financial sector lending followed good practices in the areas of reducing government ownership of financial intermediaries, improving prudential regulations to be consistent with international norms, and strengthening banking supervision to adhere more closely to international principles.
  
  
• Consistency within a country and, especially, coherence of the Bank's approach to financial sector reforms across countries should be improved, particularly with respect to the priority of Bank support for payments systems, deposit insurance schemes, and capital market development.
  
  
• The combination of ongoing debates within the Bank, absence of "good policy" notes, and the decentralized nature of Bank operations have all contributed to a situation in which the Bank "speaks with many voices" on important matters of financial sector policy.
  
  
• The Bank was ill-prepared to respond quickly in the earlier crises in Mexico (1994); and in Thailand, Korea, and Indonesia (1997); but was better prepared in Argentina, Russia, and Turkey.

• The Bank's FSB should provide guidance for Bank staff and client countries, and the Financial Sector Network should become more proactive in the quality control of financial sector components in multisector loans. This involves producing good practice notes on a range of topics, in areas where there is a cohesive internal Bank view on reforms. In areas where debate continues, it needs to provide a review of issues and options for Bank support.
  
  
• The Bank needs to focus assistance on (i) the process of preparing banks for privatization (financial restructuring) and ensuring that banks are sold to “fit and proper” owners; (ii) the implementation of laws and regulations governing the financial sector; (iii) strengthening supervision of financial intermediaries; and (iv) increasing access to credit by improving collateral laws, creditor rights, and providing technical assistance and training.
  
  
• The Bank should develop monitorable indicators to assess progress on objectives, especially in the area of prudential regulations and supervision for financial intermediaries.
  
  
• On support for countries prior to and following a crisis:
  
  - The Bank should develop a rating system, in partnership with other relevant institutions, for vulnerability to crises, making use of readily available information that can be used to engage countries in crisis prevention measures and issues in crisis response. The Bank should also do a better job than in the past of presenting assessments more candidly in documents.
  
  - The Bank should make internal arrangements to respond better to crises by developing guidelines, which should include the possibility, if circumstances warrant, of lending liquidity support to countries experiencing a crisis without stipulating ambitious reforms (which may not get realized) as justification for the loan.
  
  - Coordination with the IMF and other IFIs in crisis assistance needs to be improved, and at the outset of a crisis, the IFIs should reach quick agreement on the division of responsibilities among themselves.

Evaluation Framework

Regional Concentration of Reforms

Breakdown of Operations with Financial Sector Components, by Sector Board (Including LOC)
 

Note: Percentages do not add up to 100 owing to rounding of numbers.

Bank Concentrations in Countries That Borrowed for Financial Reforms, 1993-2001