Nicolas Véron

Financial Statements: The quest for global insurance standards

In the session on Tuesday, March 21, I hosted Romain Paserot of the International Association of Insurance Supervisors (IAIS) and Yoshihiro Kawai of Kyoto University to discuss the IAIS's ongoing project of a globally accepted Insurance Capital Standard that would apply to large internationally active insurance groups. 

Op-ed on CNN.com: Fully reimbursing SVB depositors may prove to be a bad move

CNN.com today published this op-ed in which I express doubts about the wisdom of the unlimited guarantee of uninsured deposits, which the US authorities have applied to Silicon Valley Bank and Signature Bank with the consequence that the same will be expected in most or perhaps all future cases. While it is clear that the authorities needed to provide generous liquidity assistance this week, I am among those unconvinced that it was necessary to depart from the time-tested principle of limited deposit insurance, which I view as a regime change for US finance. 

Will China's impending overhaul of its financial regulatory system make a difference?

In a new Policy Brief published today by the Peterson Institute, Martin Chorzempa and I analyzes challenges and international points of comparison for China's ongoing reform of its financial supervisory architecture. 

Update (March 28): a lightly updated version was published today by Bruegel. 

Much of the Global South is on Ukraine's side

This blog post was published yesterday by the Peterson Institute. 

Update (March 15): the post was also published by Bruegel. 

Efforts by the United States, Europe, Japan, South Korea, and other developed economies to rally the world against Russia over its invasion of Ukraine have been only partially successful. Many countries have declined to impose sanctions on Russia. But the record of votes at the United Nations indicates that most of the world, including much if not most of the developing world, is on Ukraine's side in denouncing Russia.

That record stands in contrast to some recent commentary implying that the "Global South" has adopted a position of neutrality in the conflict. That is indeed the case of China and India, the Global South's two economic and demographic heavyweights. But votes at the United Nations General Assembly (UNGA), which adopted a resolution in February demanding an end to the war and an immediate Russian withdrawal, indicate that the rest of the Global South actually leans towards supporting Ukraine.

For simplicity, the "Global South" is defined here on a criterion of gross domestic product (GDP) per capita, using GDP at market exchange rates estimated by the World Bank.[1] All countries with 2021 GDP per capita above US$15,000 are considered part of the "Global North," with the addition of Bulgaria and Romania (GDP per capita $12,221 and $14,858, respectively) as members of the European Union. Under that definition, both Russia and Ukraine are in the Global South, as are China and India. Conversely, some geographically southern countries such as Chile and Uruguay are classified as part of the Global North under this GDP per capita criterion. Thus defined, the Global South represents 85 percent of the world's population and nearly 39 percent of global GDP.

Each country's position on the Russia-Ukraine war is determined on the basis of its UNGA vote on February 23, 2023, whose outcome was broadly similar to those of earlier UNGA votes on Ukraine in 2022. While specific motivations may vary, it is natural to classify votes in favor of the resolution, which demanded that Russia "immediately, completely and unconditionally withdraw all of its military forces from the territory of Ukraine," as favorable to Ukraine, and those against it as favorable to Russia. The other two options, namely abstentions and no-shows, are bundled together as signaling neutrality.

The resulting picture is one of unanimity of the Global North: Its 57 countries all approved the resolution. By contrast, the 136 countries of the Global South embraced a range of positions, with China and India both being neutral, as illustrated by figure 1.

The pro-Ukraine camp represents almost two-thirds of the Global South's countries, and more than a third of its population. In terms of GDP, neutral China dominates the Global South with nearly half of the total (49 percent), but the pro-Ukraine camp, which includes large countries such as Brazil, Indonesia, Mexico, Nigeria, and the Philippines, makes up more than half of the rest (28 percent).

All things equal, a country's support for Ukraine is somewhat correlated with its wealth. But here too, the reality is nuanced. This is illustrated in figure 2, based on the ranking of all UN countries (including those in the Global North) by GDP per capita. All countries in the fourth (richest) quartile voted in favor of the UNGA resolution. But a majority did so in the other three quartiles as well, albeit only by a tiny margin in the first (poorest) quartile. Because of the outsized impact of the world's two most populated countries, both neutral, the share of the pro-Ukraine vote is actually higher in the first quartile than in either the second (which includes India) or the third quartile (which includes China) in terms of both population and GDP.

There is no question that the comparatively rich countries of North America, Europe, and East Asia are more engaged on the side of Ukraine than most of their peers in the Global South, even among those that supported Ukraine at the UNGA, as a recent opinion poll has documented. Strikingly, financial sanctions have been imposed on Russia by all ten richest jurisdictions of the Group of Twenty (G20), and by none of the ten poorer G20 countries. Even so, it would be inaccurate to play down the significant level of support that Ukraine keeps receiving from many of the world's less affluent countries.

Note

1. Source: World Bank, World Development Indicators, last updated December 22, 2022. For countries with nonsovereign dependencies that are reported separately by the World Bank (e.g., China with Hong Kong, the United States with Puerto Rico, Denmark with Greenland), and to the extent data were available, these dependencies are included in the GDP and population numbers. That leaves out jurisdictions without UN representation, such as Taiwan (absent from the World Bank dataset), Kosovo, the West Bank, and Gaza. All population numbers are as of 2021; GDP is as of 2021 for most countries, and 2020 for a few late reporters. In five cases (Eritrea, North Korea, South Sudan, Venezuela, and Yemen), UN estimates have been inserted as the World Bank does not provide recent data.

Financial Statements: A post-mortem of the Danske Bank fraud

In yesterday's session, I hosted Jesper Berg of the Danish Financial Supervisory Authority and David Enrich of the New York Times to discuss the lessons from the landmark settlement of Danske Bank following large-scale financial malpractice at its Estonian branch in the early 2010s.