GOVERNANCE BY

SUPRANATIONAL
INTERDEPENDENCE: DOMESTIC
POLICY CHANGE IN THE TURKISH
FINANCIAL SERVICES INDUSTRY

C. Bakir (2016)

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 INTRODUCTION
• On 17 December 2004, The European Council
approved the opening of accession
negotiations with Turkey, which commenced
on 3 October 2005.
• The current policy outcomes of the Turkish
financial system are largely the products of
‘‘governance by supranational
interdependence’’: EU, IMF, World Bank…

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 GOVERNANCE ARRANGEMENTS IN
THE
TURKISH FINANCIAL SERVICES
• Turkish banking before the 1980s fits into
‘‘governance by state control’’ (Pagoulatos
(1999) or what Zysman (1983) would label a
‘‘bank-based’’ financial system.

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 GOVERNANCE ARRANGEMENTS IN
THE
TURKISH FINANCIAL SERVICES
The Era of Lack of Effective Governance in Banking:
• The lack of legal rules, accountability and
transparency for money sources financing politicians
and political parties…
• during the 1990s, the state banks had largely been
the instruments of channeling deposits into political
rent distribution.
• ‘‘corruption triangle’’ formed among politicians,
businessman, and the mafia.

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 GOVERNANCE ARRANGEMENTS IN
THE
TURKISH FINANCIAL SERVICES
The Era of Lack of Effective Governance in Banking:
• In the 1990s, Turkey inevitably witnessed huge
budget deficits which necessitated an extensive
reliance on domestic and foreign borrowing.
• Turkish government adopted a ‘‘hot money’’ policy
of high real interest rates for treasury bills and
domestic currency appreciation to attract short term,
unproductive and speculative capital to compensate
for increasing growth in government expenditure.

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 GOVERNANCE ARRANGEMENTS IN
THE
TURKISH FINANCIAL SERVICES
The Era of Lack of Effective Governance in Banking:
• ‘‘Disinflation Program’’ sponsored by the IMF and
World Bank: tight fiscal and monetary targets aimed
at reducing the real interest rates and inflation.
• Failure of the program, capital outflows, liquidity
crisis: tight monetary and fiscal policies implemented
subsequently via the IMF intervention caused the
financial crisis of 2001.

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 GOVERNANCE ARRANGEMENTS IN
THE
TURKISH FINANCIAL SERVICES
Governance by Supranational Interdependence:
• EU accession process which requires Turkey to adopt and
implement the complete EU legislation and standards –
the acquis communautaire,
• ‘‘IMF conditionality’’ where IMF lending is conditional on
the adoption of IMF policy prescriptions;
• The World Bank ‘‘Programmatic Financial and Public
Sector Adjustment Loans’’ which require implementation
of financial and public sector reform program.

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 GOVERNANCE ARRANGEMENTS IN
THE
TURKISH FINANCIAL SERVICES
The Post-2001 Era:
• BRSA, was established in June 1999, for banking
supervision and regulation.
• Banking Sector Restructuring Program aimed to
strengthen systemic stability through enhancing the
efficacy of financial regulation and supervision
through reforms in prudential regulation:
transparency, profitability, risk management, and
capital structure in the sector.

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 AN OVERVIEW OF THE PEP, THE
BANKING SECTOR, CAPITAL MARKETS,
AND CORPORATE GOVERNANCE

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 AN OVERVIEW OF THE PEP, THE
BANKING SECTOR, CAPITAL MARKETS,
AND CORPORATE GOVERNANCE
• PEP: A Roadmap Towards the Maastricht Criteria:
• PEP program is based on the policy prescriptions of
the IMF stand-by agreements since 2001, and serves
as the basis for Turkey’s new stand-by agreement
with the IMF in February 2005.
• The ultimate objective is to meet the Maastricht
criteria.

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 AN OVERVIEW OF THE PEP, THE BANKING
SECTOR, CAPITAL MARKETS, AND
CORPORATE GOVERNANCE
The Banking Sector in a Comparative Perspective

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 AN OVERVIEW OF THE PEP, THE
BANKING SECTOR, CAPITAL MARKETS,
AND CORPORATE GOVERNANCE
The Banking Sector in a Comparative Perspective

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 AN OVERVIEW OF THE PEP, THE BANKING
SECTOR, CAPITAL MARKETS, AND CORPORATE
GOVERNANCE
Capital Markets

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 AN OVERVIEW OF THE PEP, THE BANKING
SECTOR, CAPITAL MARKETS, AND CORPORATE
GOVERNANCE
Capital Markets

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 AN OVERVIEW OF THE PEP, THE BANKING
SECTOR, CAPITAL MARKETS, AND
CORPORATE GOVERNANCE
• Corporate Governance:
• In Turkey, capital markets do not provide a market for
corporate control.
• The family owned holding companies through
pyramidal structures are the dominant corporate
model in Turkey, which has encouraged a lack of
information, transparency, and accountability in
corporate practices.

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 SUMMARY AND CONCLUSIONS
• The regulatory state, which can adopt a proactive approach in
the financial services industry by steering and coordinating
policy community, does not exist.
• The degree of centralization of the state apparatus and the
existence of institutional arrangements, which ensure a
balance between the perspectives of the BRSA, Treasury and
the Central Bank, are needed.
• The policy-making in Turkey should be open, transparent and
accountable to the public.
• The negotiation process between the relevant state actors
and business and labor organizations representing regulated
sectors must be institutionalized and regularized.

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