Ebook Role of government in capital market development
The Capital Market Development Taskforce (the Taskforce) was established to develop proposals to improve New Zealand’s financial system for the benefit of the New Zealand economy and its businesses. Specifically, the Taskforce is to identify key constraints and opportunities for development of New Zealand's financial system, identify and debate options to improve the performance of the financial system and develop a blueprint and action plan.
In support of its work, the Taskforce is seeking a framework to shape and organise its thinking about the roles of government in capital market development, particularly as a direct participant and innovator in markets and in negotiating international agreements that enhance financial sector development.
This report contributes to that aim by:
- outlining why government should care about the performance of financial markets
- briefly summarising the ways in which government policies and operational activities impact on capital markets
- developing a high-level framework for considering the role of government in capital market development.
This paper considers what potential market failures and other problems may motivate various roles for government in supporting the performance and development of the capital markets. It outlines possible roles for government but does not undertake the detailed analysis that would be necessary to support specific interventions.
A specific feature of the timing of this report is the impact of the global financial crisis on the outlook for New Zealand’s capital markets. This outlook is still highly uncertain but, while New Zealand’s financial system has avoided many of the balance sheet impairment problems that have plagued financial institutions in many OECD countries, the future will undoubtedly be very different to what was expected two years ago. Governments globally are re-emerging as significant borrowers and risk crowding out private sector capital-raising. Further, risk premia have increased with significant implications for the cost of capital. A key question for the taskforce is how it should think about the role of government in the aftermath of the crisis.
Some of the possible rationales for government intervention identified in the paper are more controversial than others. In general, given the important role that capital markets play in the allocation of resources and management of risk within an economy, the government should intervene cautiously. That said, existing axioms and dogma that imply a limited role for government should be challenged if there is evidence to the contrary.
Contents
Introduction
Why do we care about the performance of capital markets?
What role does government currently play in the capital markets?
Framework for thinking about the role of government
Conclusions
References
Download
PDF Ebook Role of government in capital market development
Posted in :
