MINISTRY OF EDUCATION AND SCIENCE OF THE REPUBLIC OF KAZAKHSTAN KAZAKH-BRITISH TECHNICAL UNIVERSITY FINANCE & ECONOMICS FACULTY Department

of Finance and Accounting

APPROVED BY

Dean of Finance &Economics Faculty, Doctor in Economics, Associate Professor _____________ G.T. Abdrakhmanova

BACHELORS DIPLOMA THESIS

Thesis title: Global financial crisis and its influence on Kazakhstan

Major: 5B050900 Finance

Developed by Bachelor Thesis Supervisor (MSc, Senior Lecturer of Finance & Accounting Department)

A.K.Pstebayeva

A.N.Mamyrbayev

Chair of Finance and Accounting Department, Doctor in Economics, Associate Professor

G.T. Abdrakhmanova

lmaty 2012

TABLE OF CONTENT INTRODUCTION...3 PART I GLOBAL FINANCIAL CRISIS AND ITS PECULARITIES 1.1 Theoretical framework for the analysis of global financial crisis: Defining and identifying financial crisis....5 1.2 The world financial crisis during 2007-2012: causes and consequences..11 PART II FINANCIAL CRISIS IN KAZAKHSTAN 2.1 Influence of global financial crisis on Kazakh economy...21 2.2 Anti-crisis measures conducted by National Bank of Kazakhstan during the crisis....35 PART III CRISIS MANAGEMENT AS A NEW MANAGEMENT PARADIG 3.1 World practice on anti-crisis measures conducted during the global financial crisis.49 3.2 Ways of improvement of anti-crisis packages conducted by central banks..54
CONCLUSION......62 BIBLIOGRAPHY..64 APPENDICES

INTRODUCTION Global Financial Crisis of 2007-2012 has been the worst since the Great Depression in the 1930s. The financial crisis has had a profound effect, much more than that anticipated by many. The national borders have been breached and the ramifications are still being felt far from the epicenter. Although the global economy is recovering, the confidence in the markets is still weak as market participants are looking for a direction which is by no means straight forward. The financial crisis was the event which was not supposed to happen, but it did. Few economists thought that the U.S. economy would ever experience a systemic financial crisis again or that it would turn into a global crisis. But, the crisis, which began in August of 2007, developed into the worst crisis. It has been unprecedented in its depth and scope. The recession in the United States spread around the world. It appeared for a time that a new Great Depression was going to occur, but central banks engaged in extraordinary efforts to stabilize the economy. As is the common perception, government regulations follow the crisis. Regulatory bodies analyze the events specific to the crisis and try to bring down formal regulations which would avoid a similar crisis in the future. After witnessing trillions of dollars of losses, high unemployment rates and company bankruptcies, national governments are pressurized and are expected to take immediate and concrete actions that restore the market confidence. But often, regulatory bodies come out with regulations which are not the optimal solution. These regulations can be more than required or sometimes, under political pressure emphasize on matters that are not the actual causes of the debacle. The aim of this Bachelor Thesis is to understand the financial crisis, its causes and the regulatory policies that have come up to avoid a next financial crisis in Kazakhstan. There has been lot of discussion on the miscreants that spawned the crisis. This thesis tries to understand the new regulations that have come up in the world. Also, it tries to identify the similarities and differences in the approaches of regulatory bodies in different regions. During the research following tasks were defined: Developing an understanding of the world financial crisis (understanding the views of different authors); Identifying main factors behind the crisis; Analyzing the impact of financial crisis on world economy, in particular, Kazakh economy; Understanding the regulatory changes during the world financial crisis; Comparison and analysis of regulatory changes; Providing views on the effectiveness of regulations in improving the current situation. This work uses a lot of information available from various books on financial crisis, conferences and panel discussions, blogs and newspaper articles, statistical data, websites of central banks and various regulatory bodies. The Thesis is structured as follows:

Part I provides a theoretical framework for the analysis of world financial crisis and describes origins of the contemporary financial crisis, disputes reasons and tries to find out explanations of some questions, such as causality of the crisis, role and regulation of the systemic risk, etc. Part II is devoted to the analysis of negative effects on Kazakh economy including national economy, industrial sector and banking system. The chapter contains also description of the most important regulatory changes in Kazakhstan. Part III concludes the Thesis with some after-crisis-to-do and proposals.

PART I GLOBAL FINANCIAL CRISIS AND ITS PECULARITIES 1.1 Theoretical framework for the analysis of global financial crisis: Defining and identifying financial crisis The crises in the world economy are supposed to be logical, inevitable, and periodic. By the way the most are almost always unexpected, in spite of the warning signs and prevention of persistent analysts and economists. That is what happened with the current global financial and economic crisis. When selecting a particular object of study, the authors try to reveal the traditional notion of a phenomenon on the basis of its internal contents. According to the glossary crisis a sharp abrupt fracture, dislocation of the economic life, which leads to a reduction in the production of goods, increased unemployment, deterioration of the situation of workers. In a large economic dictionary noted that "the financial crisis the deep frustration of the state financial system, followed by inflation, the volatility of the securities exchange, manifested in the sharp disparity of income to the expenditure budget, instability and collapse of the exchange rate of the national currency, mutual non-payments of economic entities, currency mismatch in circulation requirements of the law of money circulation ". Philosophical Dictionary interprets "financial crisis" as "the emergence of conflicts and their resolution, and at the same time, the emergence of new contradictions", it should be noted that every crisis is a necessary aspect and stage of development, when the contradictions of the system deteriorated sharply to the brink of collapse, which allows to detect and in their awareness of their historical subjects of action, this collapse, and clears the way for updating or eliminating system for the jump, achieving a new quality system or the transition to a qualitatively new system, thus accelerating the movement of history, the pace of historical development. Referred to the financial crisis is quite a variety of situations in which some financial companies or assets (for example, shares or bonds) dramatically lose a substantial part of its value. It is clear that the financial crisis first hit the financial sector. However, due to the fact that the real sector is closely related to finance, in the end such crises are reflected in all sectors of the economy and lead to a decline in production, increased unemployment, lower living standards, etc. More common definition on financial crisis used in literature is a situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated with a panic or a run on the banks, in which investors sell off assets or withdraw money from savings accounts with the expectation that the value of those assets will drop if they remain at a financial institution. A financial crisis can come as a result of institutions or assets being overvalued, and can be exacerbated by investor behavior. A rapid string of sell offs can further result in

lower asset prices or more savings withdrawals. If left unchecked, the crisis can cause the economy to go into a recession or depression. According to definition proposed by Frederic S. Mishkin, A financial crisis is a disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities. A financial crisis thus results in the inability of financial markets to function efficiently, which leads to a sharp contraction in economic activity. By the way, up until recently, views of financial crises in the literature have split into two polar camps, those associated with monetarists versus a more eclectic view put forward by Charles Kindleberger and Hyman Minsky. Monetarists beginning with Friedman and Schwartz (1963) have linked financial crises with banking panics. They stress the importance of banking panics because they view them as a major source of contractions in the money supply which, in turn, have lead to severe contractions in aggregate economic activity in the United States. Monetarists do not view as real financial crises events in which, despite a sharp decline in asset prices and a rise in business failures, there is no potential for a banking panic and a resulting sharp decline in the money supply. Indeed, Schwartz (1986) characterizes these situations as "pseudo financial crises". Government intervention in a pseudo-financial crisis is unnecessary and can indeed be harmful since it leads to a decrease in economic efficiency because firms that deserve to fail are bailed out or because it results in excessive money growth that stimulates inflation. An opposite view of financial crises is outlined by Kindleberger (1978) and Minsky (1972) who have a much broader definition of what constitutes a real financial crisis than monetarists. In their view, financial crises either involve sharp declines in asset prices, failures of large financial and nonfinancial firms, deflations or disinflations, disruptions in foreign exchange markets, or some combination of all of these. Since they perceive any of these disturbances as having potential serious consequences for the aggregate economy, they advocate a much expanded role for government intervention when a financial crisis, broadly defined, occurs. One problem with the Kindleberger-Minsky view of financial crises is that it does not supply a rigorous theory of what characterizes a financial crisis, and it thus lends itself to being used too broadly as a justification for government interventions that might not be beneficial for the economy. Indeed, this is the basis of Schwartz's (1986) attack on the Kindleberger-Minsky view. On the other hand, the monetarist view of financial crises is extremely narrow because it only focuses on bank panics and their affect on the money supply. The President of the European Central Bank Mr. Jean Claude Trichet opines that financial crises share some commonalities. In particular, crises are associated with the emergence of euphoria and complacency in financial markets, typically supported by rapid credit growth and a growing belief that new concepts like financial innovation or technological advances have rendered old limits on economic performance obsolete.

At the same time Trichet acknowledges the fact that each crisis is also unique. Every crisis has its own characteristics, which make it different from the previous ones. In order to avoid the next crisis it is essential to understand the causes and mechanisms behind the current crisis. Every crisis takes its own course in the financial system and affects specific sectors more than others. Crisis, being the moment of dialectic development represents process, and as that, passes some stages of development, namely: - Stage of formation of crisis; - Stage of development of crisis till a full maturity; - Stage of a full maturity of crisis; - Stage of permission of crisis. For emergence of crisis the special aggravation of contradictions - not initial, initial for this system, and not maximum is necessary. Definition of degree of this aggravation is connected with the concept a measure of relative independence of the parties of a contradiction, that is that limit of an aggravation of contradictions behind which crisis begins. This degree of an aggravation of contradictions is reached at a stage of formation of crisis. This stage covers the period from emergence of the first sporadic crisis moments in development of the phenomenon, process and system to such level of an aggravation of contradictions when there is a possibility of a quantum leap in the presence of especially favorable circumstances, conditions. In dialectics necessary and casual accident even more strongly than need, however, the new reality is already possible, and, means, crisis became, is the fact and a development. At the second stage they become crisis develops before complete maturing, there is a process of further isolation of contrasts, aggravations of dialectic contradictions, need declares everything itself more persistently, generating more and more the corresponding accidents, transformation of possibility into reality becomes more and more necessary. The third stage - a stage of a full maturity of crisis. The unity of finally stood apart parties of a contradiction is supported violently, the antagonism reached extreme development, the old qualitative condition practically reached the top border of the quantitative measure (the internal limit of system is almost reached), transition to new quality is objectively possible at any time in the presence of a maturity of a subjective factor, transformation of possibility of a quantum leap into reality became crucial need of development. The fourth stage - a stage of permission of crisis or the negative destructive side of the crisis. In crisis as its last stage, enters not jump as a whole which includes not only destruction old, but also creation new but only the negative destructive part of jump. It is often said that those who do not remember the past are doomed to repeat it. With economics it's no different, considering the world has experienced dozens of crashes and recessions, undoubtedly caused by acquisitive traders and lawmakers with few memories of the past. So its important review past crasheshopefully new management won't repeat them. But during the assessment

of views of crises and their reasons it is necessary to note that they changed in time together with change of the most social and economic reality. Taking into account it the point of view of a number of the Russian economists who allocate three stages in change of views of recurrence in the crisis phenomena is worthy. The first stage covers the period since the beginning of the XVIII century to the middle of the 30th of the XX century when judgments prevailed that economic crises or in general are impossible under capitalism (J. S.Mill, D. Ricardo), or they carry, only casual character and system of free competition is capable to overcome independently them (Sismondi, R. Rodbertus, K.Kautsky). The second stage covers the period from the middle of the 30th to the middle of the 60th of the XX century. Allocation of this period is connected with Keynes and first of all with his conclusion that economic crises (the depression is more exact, stagnation) are inevitable in the conditions of classical capitalism and follow from the nature of the market inherent in it. Keynes among the western economists directly declared to one of the first that the capitalist market includes various manifestations of monopolist and why the price and a salary are nonflexible. As essentially necessary means of smoothing of problems of crisis and unemployment Keynes put forward idea of ensuring the state intervention in economy with a view of stimulation of effective cumulative demand. In research of a factor of recurrence it is necessary to carry to his merits also the theory of the animator developed by it which in the subsequent began to be used widely in the analysis of the reasons of recurrence. The third stage in research of the reasons of crises is the period from the middle of the 60th so far. During this period, first, it began to be given particular attention to differentiation of the internal and external reasons of recurrence of market economy, and to internal factors it began to be paid primary attention. Secondly, the position of a number of experts according to which the state in the developed countries not always aspires to anti-recessionary regulation, to smoothing of cyclic fluctuations and to stabilization of economic balance was defined, and carries out quite often so-called about cyclic policy, i.e. provokes and supports recurrence. Researches of the nature of crisis in the conditions of state regulation of economy generated a number of new views and concepts on this problem. Among them: concepts of an equilibrium business cycle and a political business cycle. The first reflects development of ideas of monetarism. According to this concept the state along with many functions inherent in it carries out a role of a peculiar generator of monetary "shocks" which deduce economic system from an equilibrium state and thus sustain cyclic fluctuations in public reproduction. In 70 the 80th this concept was actively developed by representatives of the theory of rational expectations. If monetarists consider that the state can provoke a cycle, using insufficient awareness of people on the true contents and the purposes of the various directions of state economic policy, supporters of the theory of rational expectations proceed in the matter from opposite reasons. They consider that businessmen and the population learned to estimate and distinguish true motives of decisions of state authorities thanks to occurring information revolution

and can react in due time every time to them in compliance with the benefit. As a result of the purpose of a state policy remain unrealized, and recession or lifting accepts more strongly pronounced character. The second concept (a political business cycle) is based that dependence between an unemployment rate and a rate of inflation is defined by Phillips Curve, i.e. there is an inverse relationship between two variables: with the low rate of unemployment, the prices rise rapidly. His supporters believe that the economic situation within the country essentially influences popularity of ruling party. As the main economic indicators to which the population reacts, rates of inflation and standard of unemployment are allocated: than below their levels, other things being equal more voices will be submitted by that on upcoming elections for ruling party or the president. The literature has used different criteria to identify crisis episodes, many of which fit directly or indirectly in parts of the definition proposed above. A full and uncontroversial identification is difficult, since it involves a counter-factual exercise: what would have happened in each particular episode if the financial sector had remained intact throughout? Instead, literature has identified episodes in which there are signs of disruption in the financial system, in financial variables, in macroeconomic variables or in some combination of these without a stronger causal claim. For example, a direct sign of a large-scale disruption in financial markets is the presence of widespread bank runs, bank failures or bank insolvencies. While it is easy to determine whether there was a bank run or a bank failure, insolvencies are much harder to spot. For this reason, the identification of banking crises often relies on the assessments of specialists (Caprio and Klingebiel, 1999; Laeven and Valencia 2008). Another way to detect disruptions in financial markets is to look at the behavior of financial flows and stocks. An important example of this strategy is Calvo (1991), who looks for sudden stops in the inflow of foreign capital. Mendoza and Terrones (2008) focus instead on credit booms, defined as large departures of credit to the private sector from its long-term trend. As it turns out, the peak of these booms oft en coincides with financial crises, especially when they happen in less developed countries. A third approach is to look for loss in the value of important classes of assets such as government debt (Reinhart and Rogoff, 2010), stocks and housing (Bordo and Jeanne, 2002). These are assets that represent an important part of the balance sheet of households and firms, so that a drop in their value may lead to an interruption in the flow of finance as lenders fear for the value of the collateral that the borrowers have to offer. Exchange rate crises can trigger or amplify a financial crisis if financial institutions have liabilities in foreign currency (Diaz-Alejandro 1984; Calvo and Talvi 2008). However, not all exchange rate crises turn into financial crisis. For instance, while the collapse of the European Exchange Rate Mechanism in the early 90s was something policy makers at the time did not desire, in most cases there was no spill over to the broader financial system. In this respect, Kaminsky and Reinhart (2000) propose that it is useful to focus on episodes in which an exchange rate and a banking crisis take place simultaneously.

The combination of criteria filters out episodes such as the ERM crisis as well as episodes in which banking crises did not have any real effect. Lastly, Kehoe and Prescott (2007) define episodes that they call Great Depressions of the 20th Century. These are occasions in which a country has suffered a precipitous and persistent output drop. Their definition lacks any reference to disruptions in the financial sector but, as it turns out, there is a substantial degree of overlap with financial crises identified in other studies. In spite of the different definitions, there is a striking amount of agreement on the relevant events. Apart from the Great Depression, most studies include observations from the Latin American sovereign debt crisis in the early 80s, the Scandinavian collapse in the early 90s, Japan throughout the 90s, the Asian crisis in the late 90s and Argentina in 1998-2001. This coincidence strengthens the presumption that financial crisis represent a reasonably well-defined economic problem, which is amenable to data collection and systematic research. Before discussing what happens during a crisis, it is important to understand the period preceding a crisis. As the literature shows, this proves to be crucial in designing and implementing the right set of policies. The identification of clear antecedent patterns can provide a warning signal to policy makers and suggest corrections to be taken in order to avoid the worse. While there are several factors that led to the crisis, the most notable pattern is a period of boom in economic and financial activity that gave rise to stock market and housing bubbles. A stylized account of the typical boom can b e reconstructed from the findings of different papers in the literature. There are regulatory changes, which allow banks to lend more freely and take more risk (Kaminsky and Reinhart, 2000; Tornell and Westermann, 2002). What follows is an increase in the supply of credit by banks, as they lend more relative to their assets and to their capital (Mendoza and Terrones, 2008). To this increased supply of credit there is a matching increase in the demand as firms increase their leverage and the government borrows more heavily (Rogoff and Reinhart, 2010). At the aggregate level, these trends are apparent in an increase in domestic credit (Mendoza and Terrones, 2008) and in capital infl ows from abroad (Rogoff and Reinhart, 2010). Prices of key assets react as house and equity prices increase (Bordo and Jeanne, 2002; Rogoff and Reinhart 2010) and as the exchange rate appreciates (Tornell and Westermann, 2002). All the while there is a boom in economic activity, with an increase in output and investment. As the real economy starts to lose steam, these trends revert abruptly, and the boom turns into a crisis (Kaminsky and Reinhart, 2002; Mendoza and Terrones 2008). Two main strands of the literature on crises attempt to account for the boom preceding the bust. The first view states that the boom-bust cycle is evidence of excessive investment and risk taking. In the second view, asset price boom increases liquidity and facilitates investment. In particular, the boom in asset prices may stem from self-fulfilling expectations about their value, rendering the boom fragile. Examining both these strands of economic literature provides a more balanced view of boom periods.

However, it should be noted that both strands of the literature point out that booms eventually lead to busts. Despite the fact that there were many signals reflecting the crisis, economists significantly underestimated the severity of the downturns. Many economists, Nouriel Roubini among them, argue that some of the optimism is built into the very machinery, the mathematics, of modern economic theory. Econometric models typically rely on the assumption that the near future is likely to be similar to the recent past, and thus it is rare that the models anticipate breaks in the economy. And if the models cant foresee a relatively minor break like a recession, they have even more trouble modeling and predicting a major rupture like a full-blown financial crisis. Only a handful of 20th-century economists have even bothered to study financial panics. (The most notable example is probably the late economist Hyman Minksy, of whom Roubini is an avid reader). As Roubini stated, today were in uncharted territory where standard economic theory isnt helpful. Finally, literature review showed that economic science did not cause the crisis. However, many of its theories did offer an intellectual background or some sort of academic legitimacy to both policy and the markets, and, in the case of the recent crisis, there was not only a failure of the dominant form of economic thought but, above all (neoclassicist school, dominant until now, and Keynesian). It should be noted that there is a problem of selective use of economic theories when it comes to practical economics and that, in order to be useful, economics ought to utilize knowledge from other disciplines and take more account of interdependencies between political and social phenomena.

1.2 The world financial crisis during 2007-2012: causes and consequences The global financial crisis during 2008-2012 is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s (Figure 1).
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"Black Monday" (1987) "Junk bonds" (1989-1990)

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The Asian Crisis IT Mortgage Mexican (1997-1999) company's crisis (2007Peco Crisis crisis (20002009) (1994-1995) 2001) Total duration

Duration until the recovering period

Figure1.The depth and duration of crisises, in terms of quarters

Note: created by author based on The Global Europe Anticipation Bulletin Generally, it resulted in the threat of total collapse from large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 20082012 global recession and contributing to the European sovereign-debt crisis (Table 1). Stage 1 stage: the middle 2007 2008
st

2nd stage: March 2008September 2008

3rd stage: September 2008 February 2009

4th stage: March-July 2009

5th stage August 2009 -2012

Stage characteristic Crisis developed in the USA and Great Britain, mentioning financial sector and the housing market. Periodically there is a capital outflow from emerging markets, as a result crisis begun in the countries of group 2 which are strongly depend on inflow of the capital and with an overheat of economy (Kazakhstan, the countries of Baltic, Ireland, Spain). In the USA problems in financial sector became aggravated, the state was compelled to support FannieMae and Freddy-Mac. Unemployment rate showed a rapid increase, despite the fact, that GDP growth rate is quite stable. Developing (China, India) and some transitional countries showed steady growth of gross domestic product and the financial markets. The prices for oil broke records, the dollar becomes cheaper, decoupling theory was extended. The sharp phase of crisis begins after bankruptcy of Lehman Brothers and ING nationalization. A crisis of confidence in the financial markets. Flight from risks. Deleveraging. Collapse of international trade. Recession of gross domestic product or sharp decrease in growth rates in the majority of the countries of the world. Sharp rise in price of dollar. Emergence theory of green sprouts. Stabilization of falling of gross domestic product in the majority of the countries of the world. Rally in stock markets. Restoration of the prices raw materials. Purchases by China of metals and other raw materials. Dollar reduction of the cost to other currencies. Bond market restoration. Falling of volume of bank crediting in the developed countries. Positive growth rates in the USA and EU. Fast return to growth in the countries of Asia. In stock markets assets are considerably overestimated if to estimate on /. Rally is

slowed down. The markets become unstable waiting for sovereign or sub-sovereign defaults: restructuring of a duty of Dubai-world, decrease in a rating of Greece and etc. Some of the countries are compelled to turn off support and to cut down the public expenses. The dollar rises in price again, though isn't so strong, as year before though isn't so strong, as year before. Greece gets a 110bn (93bn) bail-out from other countries using the euro, and the International Monetary Fund. Euro continues to fall and the public debt of other members of EU starts to attract attention (Ireland). EU and IMF agreed on 85 billion euro bail-out for the Irish Republic. By the way Portugal recognizes that cant cope with problems and asks help from EU. Three countries mostly affected by the crisis (Greece, Ireland and Portugal) accumulated 6 percent of Eurozone GDP. However, Fitch Ratings assumes that Greece finally declares a default. The Swiss economy appeared on the verge of technical recession. Low rate of probability that world economy will recover in 2012-2013. Table 1. Global financial crisis stages Note: developed by the author based on BBC News, Bloomberg, The Economist, Telegraph To understand what happened in details it is important to be clear about what has to be explained. First, the subprime mortgage shock which triggered the crisis was not large. The crisis was connected to subprime mortgages, a relatively new kind of mortgage that was designed to make home ownership available to lowerincome people, but which depended on house prices rising for its efficacy. (Gorton 2010). When house prices stopped rising, there were expected losses on these mortgages, many of which had been securitized. But, subprime was not large enough to explain the crisis. At the time of the crisis there was about $1.2 trillion of subprime mortgages outstanding, about 80 percent of which had been securitized. Even if every single one of those mortgages defaulted with no recovery at all, it would not explain the magnitude of the crisis. Furthermore, the losses on subprime mortgages have not, in fact, been large. Park (2011) examines trustee reports on February 2010 for 88.6 percent of the notional amount of subprime bonds issued between 2004 and 2007. She calculates the realized principal losses on the $1.9 trillion of originally AAA/Aaarated subprime bonds issued between 2004 and 2007 to be 17 basis points as of February 2011. The same point is by the Financial Crisis Inquiry Commission (FCIC) Report (2011: 22829) by looking at the ratings on subprime mortgages. The FCIC notes that: Overall, for 2005 to 2007 vintage tranches of mortgagebacked securities originally rated tripleA, despite the mass downgrades,

only about 10% of AltA and 4% of subprime securities had been materially impairedmeaning that losses were imminent or had already been sufferedby the end of 2009. So, if the shock was not large, how did we get a crisis? Second, at the onset of the crisis all bond prices fell (spreads rose), not just subprimerelated bonds. In particular, the prices of all manner of assetbacked securities fell. Why did the prices of, say, AAA/Aaa credit card assetbacked securities nosedive when this asset class has nothing to do with subprime mortgages, and did not experience losses? Moreover, the prices of other securities falling closely tracked measures of the deterioration of bank counterparty risk, rather than track prices of subprime mortgages. Financial institutions counterparty risk is usually measured by looking at LIBOR (the London Interbank Offered Rate), the rate at which large financial institutions lend to each other, minus the rate on the overnight index swap (OIS), which is taken as the riskless rate. So, LIBOR minus OIS (LIBOIS) measures the risk premium in the interbank market. Spreads on subprime did not follow this pattern, but rose continuously from January 2007 (Gorton and Metrick 2012). The measure of interbank counterparty risk and the spreads on nonsubprime bonds moved together, but they did not move with subprime spreads. Finally, any explanation of the financial crisis confronts another issue, namely, the question of whether the crisis of 20072009 was special, an unlucky convergence of a number of unique factors. Or, was it at root fundamentally similar to all the financial crises that have repeatedly occurred throughout the history of market economies internationally? This question is especially important for policy considerations. The evidence discussed here can be summarized as follows:

Figure 3.Origins of world financial crisis Note: International Institute for Labor Studies So, the main causes of the global financial recession: problems with selected by the U.S. model of economic advancement; extensive development of derivative financial instruments; prices at commodity exchanges; inefficient investments risk assessment system, investing in risky assets - the crisis in subprime. In 2007 in the United States has badly hit by the burst of the property bubble and panic spread over the country. Although the economy of United States grew by 0.6 per cent in the last quarter of 2007, down from 4.9 percent in the previous quarter, day by day worsening scenarios emerge, from escalating oil prices, to a depreciating dollar and financial institutions bailout by the Federal Reserve. Many economists and policy makers share the view that a subprimeled recession i.e. two consecutive quarters with negative growth is inevitable and will be much deeper and longer than the 2001 dotcom downturn. United States recession will undoubtedly have an important impact on the world economy. In the Figure 4 it is clearly seen that world GDP growth rate following the downturn of US economy. That means US economy has a great impact on the global economy.

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Figure 4.GDP annual growth rates, % Note: created by author based on World Development Indicators & Global Development Finance, World Bank Data The main reason for that high level of economic integration among the developed country and high foreign investment is the subprime sector of United

States. Except few exception like India, China most of the countries around the world badly hit by this financial meltdown. In this paper impact of financial crisis over the major economies of the world revisited to find out the recovery policy and their effects. During this financial crisis, global economy has suffered, but the degree of regression varied. After second half of 2009, the global recession triggered by financial crisis was nearing completion, and economic recovery began to appear, but the situation of recovery was different in various countries. January 2010 the report of IMF "World Economic Outlook" noted that developed countries experienced a growth with 3.2% in 2009; after the recession, the economic growth was expected in 2010 only 2.1%; yet this was in sharp contrast to the emerging economies, whose growth as a whole in 2010 would reach 6.0% (Appendix 1). According to "World Economic Outlook" report of 2011, the real economic growth rate of emerging and developing economies in 2010 has reached 7.1%.

Figure 2. Chart for Dow Jones Industrial Average (INDU) Note: Bloomberg Another important indicator is the Balance of Current Account which tells if a country has a deficit or a surplus. A surplus is indicative of an economy that is a net creditor to the rest of the world. It shows how much a country is saving as opposed to investing. This means that the country is providing an abundance of resources to other economies, and is owed money in return. By providing these resources abroad, a country with a CAB surplus gives other economies the chance to increase their productivity while running a deficit. This is referred to as financing a deficit. A deficit reflects an economy that is a net debtor to the rest of the world. It is investing more than it is saving and is using resources from other economies to meet its domestic consumption and investment requirements. A current account deficit is usually accompanied by depletion in foreign-exchange assets because those reserves would be used for investment abroad. The deficit could also signify increased foreign investment in the local market, in which case

the local economy is liable to pay the foreign economy investment income in the future.

Figure 5.Current account balance (BoP, current US$) Note: developed by author based on World Development Indicators & Global Development Finance, World Bank Data Figure 5 shows that economies such as United States and EU have experienced large deficits on the back of property and construction booms that proved unsustainable. Meanwhile, current account surplus in China far above historical norms financed unsustainable booms elsewhere. As the aggregate euro area current account position was close to balance, Barnes, Lawson and Radziwill concluded that much of the lending and borrowing of individual countries had offsetting positions of other euro area economies. The financial crisis has had a pervasive impact on the real economy of the EU, and this in turn led to adverse feedback effects on loan books, asset valuations and credit supply. But some EU countries have been more vulnerable than others, reflecting inter alia differences in current account positions, exposure to real estate bubbles or the presence of a large financial centre. The financial crisis strongly affected the EU economy from the autumn of 2008 onward through three transmission channels: via the connections within the financial system Although initially the losses mostly originated in the United States, the writedowns of banks are estimated to be considerately larger in Europe, notably in the UK and the euro area, than in the US. Also as a result of deleveraging, banks repatriated capital from the emerging economies of Europe by closing credit lines. It initially started with the liquidity problem, lack of confidence on counterparties and uncertainties in prices of complex products, but later developed into solvency crisis. via wealth and confidence effects on demand

As the housing prices dropped, households experienced stiffening of lending standards. Saving increased and the demand for consumer goods decreased. Easy credit was no more available. Also there was little confidence on the bank portfolios. These portfolios found no buyers, as investors flocked to safe havens (government bonds). via global trade Business investment and demand for consumer durables - both strongly credit dependent and trade intensive - had plummeted, due to the unavailability of trade finance and a faster impact of activity on trade as a result of globalization and the prevalence of global supply chains. The world financial crisis - starting from the US subprime mortgage crisis spread in all major economies. UBS quantified their expected recession durations: the Eurozone's would last two quarters, the United States' would last three quarters, and the United Kingdom's would last four quarters. Many experts suggest systematic money injection in the financial market to pull the global economy. The main idea was not to break established system very rapidly. Just bring the confidence of the stakeholders of the market. Developing countries show a mixed impact from the crisis. Some economies fall from very high growth rate like Cambodia and Kenya. On the other hand India shows a very good economic projection with around double digit economic growth. One of the major economies, China also shows more than double digit economic growth. Arab world also badly affected by the crisis. They lose around $3 trillion due to crisis. Unemployment also hit very badly. Worst scenario was reduction in foreign investment. Due to lack of foreign investment Arabs are failed to continue their development project create huge layoffs. Euro crisis, 2010 added a new dimension of the existing financial crisis. Some euro countries are suffering from very high amount of external debt. Recently a long desired package received by the Greece government. Some other euro nations are also contracted for mutual financial assistance which is approved by the euro central bank. IMF was forecasted in January, 2010 the advanced economies will be exit from the current recession from middle of 2010. Conversely these countries shows average GDP growth rate of about 2% in the third quarter of 2009. And emerging economies accelerated at around 8%. Besides global productions and trade deals increase indicating recovery. Most of the researcher forecasted continuation of this recovery in 2010. But the central question is the strength of the recovery as very high level of unemployment and huge external debt exist in the major economies. Banking sector was seriously affected by the financial crisis. Profitability was hit at the bottom. This sector is coming out from the recession but very slowly. The write down of bad debt is lower than the expected earlier. United States and European banks recapitalization is progressing while financial instability is the major risk. Governments should not stop the measures taken in the recession period. And they have to cautiously plan the exit strategy of intervention.

Figure 6. ROE and ROI indicators, % Note: Federal Financial Institutions Examination Council, Call Report So, in 2012 global banking sector will face the following key challenges: Appropriate pull out strategy formation from the trouble assets. They have search for growth in the weak market. Cope up with the new regulatory change and extent of the changes. They have to give effort to improve governance and risk measurement. Meeting challenges of core IT system. At this point of time banking sector shows a mixed outlook. Global bankers should deal this situation very carefully. Otherwise in this weak recovery scenario banks may be collapsed. Thus, it is possible to allocate three important features of the current global financial crisis. Firstly, beginning in the conditions of globalization, crisis has unprecedented character on scales, covering practically all dynamically developing countries and regions. And it affects those who were most successful in the last decade more strongly; on the contrary, the stagnant countries and regions suffered from it to a lesser extent. It is told as a characteristic and for an intra economic situation in the separate countries, the most serious problems are observed where there was an economic boom whereas depressive regions almost don't feel changes. It sharply complicates recovery from the crisis process: not clearly, who can become "locomotive" of restoration of growth. Secondly, modern crisis has structural character, that is assumes serious updating of structure of world economy and its technological base. While it is hard

to say, what structural changes will occur, however redistribution of forces in branch and regional aspects will be their result. Thirdly, crisis has innovative character. In recent years it was much told about importance of innovations, transfer of economy to an innovative way of development; it also occurred in the financial and economic sphere. Here arose and quickly financial innovations new tools of the financial market which as then it seemed, can create conditions for infinite growth extended. But, as it becomes clear now, many leaders of the financial world had of them very vague idea that brought to a double sort to consequences. Finally, the global financial recession that began in 2007 and covered almost every country, could be prognosticated. If its consequences and growth were predicted, its negative and destructive influence on the world and national economics could be partly neutralized. As any crisis, the financial recession of 2007 had its own preconditions and indicators, showing disproportions in the global economics and the U.S. financial systems condition, that the world's rating agencies and leading economic analysts were not paying attention or were believed in U.S. indestructibility and firmness. Still, the recession occurred, maybe a little earlier or later than it should, its an occasion for dispute.

PART II FINANCIAL CRISIS IN KAZAKHSTAN 2.1 Influence of global financial crisis on Kazakh economy After long era of growth the world faces a downturn starting from 2007. This financial crisis started from American economy spread to all over the world due to more integration among the economies. GDP growth is the major indicator of the economic condition. Following graph exhibits GDP of Kazakhstan during the high time of the crisis.
30000 25.00

25000

21.5 20 17.4 16.1 13.5 11.7 9.80 10.1 9.8 9.3 5.9 9.6 9.7 10.7 8.9 4.7 3.3 1.2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H2012
20.00

20000

17.9 15.5 9.6 7.3

16.6
15.00

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10.00

10000

7.5

7 5.6
5.00

5000

0.00

GDP, KZT bn

Real growth %

Deflator,%

Figure 7. GDP of the Republic of Kazakhstan Note: created by author based on The Agency of statistics of the Republic of Kazakhstan Impact of world financial crisis of 2007 was felt in all global financial system. As a result of the amplified concern concerning solvency of the companies emergency measures on permission of financial problems of a number of the largest financial institutions of the USA and Europe were taken. In particular, bodies of regulation of the USA and Europe took emergency measures on stabilization of the markets, including large-scale granting liquidity, immediate intervention for the purpose of sanitation of weak establishments, increase in a limit of insurance of deposits and the legislation adopted in the USA on use of public funds for purchase of unsuccessful assets at banks. Combination of such factors as growth of losses, reduction of prices of assets and deepening of economic recession, caused serious concern concerning viability of more and wider segment of a financial system. Reduction of a share of debt funds occurring in 2008 it was accelerated and became chaotic that was shown in sharp reduction of prices of actions of the financial organizations, increase of cost

of financing and the expenses connected with protection against a default, and also falling of the prices for assets. Separate attempts to overcome intensity with liquidity and to solve problems of the organizations experiencing financial difficulties, didn't allow restoring trust of participants of the market as these measures couldn't solve widely extended deep problems. One of factors of aggravation of a world economic crisis was cardinal change of the price for oil in the world market in the second half of 2008. The price for oil in the summer of 2008, having reached 145,7 dollars for barrel, in recent weeks 2008 fell to 37,9 dollars, having shown decrease for 110 dollars in comparison with the summer price.
140 132.72 120 100 80 70.76 60 40 20 0
J M M J 2007 S N J M M J 2008 S N J M M J 2009 S N J M M J 2010 S N J M M J 2011 S N J M M J 2012

123.26

84.82

95.16

39.95

Figure 8. Europe Brent Oil Spot Price, USD per barrel Note: created by author based on Thomson Reuters Dynamics of the price for oil of a grade of Brent also showed the raised volatility. In spite of the fact that as a whole price change for 2008 made only 2 %, quotations fell from value in 145,61 US dollars in July to 93,84 US dollars in September and further to 59,9 US dollars by the end of October, 2008. Correction of the prices in the second half of year occurred on a wide range of products; however from all exchange goods the oil market most tested on itself pressure of the speculative capital. In contrast, gold prices were reflected a positive trend.

Figure 9. Spot Gold Price, USD Note: World Gold Council All measures connected with decrease in oil production and undertaken for stabilization of cost of oil, appeared inefficient, and the price for oil continued to fall till last day 2008. The main reason for sharp falling of the price for oil was reduction of demand for oil owing to delay of growth rates of economy in the various countries.
Industry
100 80 60 40 20 0 -20 -40 -60 J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J 2008 2009 2010 2011 2012

Transportation Retail trade

Agriculture Investment
80 60 40 20 0 -20 -40 -60 -80

Construction

Figure 10. Growth indexes, y-o-y % Note: created by author based on The Agency of statistics of the Republic of Kazakhstan

It should be noted that GDP per capita has a positive correlation with oil prices. Kazakh economy is much based on extractive industry, thats why country was affected directly during the crisis.
12,000 100.0 90.0

11,357 91.5 9,070 64.2 58.3 50.0 5,292 6,772 8,514 7,165 53.48 71.21

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87.48 80.0
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3,771
2,000 0 2005 2006 2007 2008 2009 2010 2011 GDP per capita,$ Annual crude oil price, $ per barrel

0.0

Figure 11.Correlation between GDP per capita and Oil Prices in Kazakhstan Note: developed by author based on The Agency of statistics of the Republic of Kazakhstan The economy continued to recover strongly from the impacts of the global financial and economic crisis of 2008-2009. Real GDP grew by 7.5 percent in 2011, for the second year in a row (over 1.2 percent registered in 2009). Growth in 2010-11 reflected a demand-driven recovery in capacity utilization in non-oil sectors from the low levels realized during the crisis. A rebound in agricultural output from the drought of 2010 also contributed to the economic expansion. A stronger external position influenced the recent upgrades in Kazakhstans sovereign credit ratings. Kazakhstan, as a large oil exporter, has benefited from higher commodity prices, and witnessed its external trade and current account balance improved significantly last year. In 2011, the current account surplus at US$ 14 billion (equivalent to 7.6 percent of GDP) was 6 times higher than in 2010. Total official international monetary and fiscal reserves rose by 23 percent last year, reaching US$ 73 billion (40 percent of GDP) by the end of 2011. This upward trend continued over the first quarter of 2012, reflecting increase in oil prices. Consequently, a strengthened sovereign balance sheet encouraged the rating agencies Standard & Poors and Fitch to upgrade Kazakhstans foreign currency sovereign credit rating by one notch, to BBB+ (stable outlook) and BBB (positive outlook, with a country ceiling of BBB+), respectively. Prompt growth of the commodity prices in 2007 proceeded and in 2008. So, in February, 2008 the highest rise in prices for raw materials for the last decades was

fixed - dynamics of an index of Reuters/Jefferies hard currency showed the maximum historical gain in 12 % in a month. At the same time, growth of volatility of the prices, fed by the speculative capital, finally, was transformed to sharp correction in the 3rd quarter of the current year, connected with need of fixing of profit, reduction of liquidity and fears of delay of growth of world economy.
4000 3500 3000 2500 2000 1500 1000 500 0 -23.5% -10.0% -20.0% -30.0% 10.0% 0.0% 17.6% 20.0%

The asking average housing prices per sq. m., USD (RHS)

Figure 12. Housing price in Almaty (USD per sq.meter) Note: developed by author based on krisha.kz The price of the main trigger of inflation in developing countries in 2007 wheat - also showed similar dynamics. In 2008 it was decreased by 40%. In turn gradual correction of the prices "blown up" owing to speculative moods on assets was observed and in the markets of real estate of the various countries of the world.
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30
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6.4 6.6 6.8

6.7 7.5

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 exp

Figure 13. Inflation, y-o-y,% Note: developed by author based on The Agency of statistics of the Republic of Kazakhstan

Tendencies of the market of real estate in developing countries developed in different directions. One country endure some recession in the real estate market as a result of limitation of external resources which last years went in large volumes, including on the real estate market. Other countries showed a high rise in prices for the real estate, connected first of all with preservation of demand for housing, an overflowing of resources from stock markets on the real estate market owing to world financial crisis, and also decrease in volumes of the new offer owing to complication of attraction by builders of extra financing. The combination of numerous negative shocks owing to development of global financial crisis since the beginning of 2008 brought with an accruing tendency to gradual delay, and then business recession in many countries of the world. Gradual manifestation of such consequences of development of crisis as: - reduction of prices of real estate; - a considerable rise in prices of the exchange goods in the world market; - toughening of credit conditions; - decrease in level of consumer expenses and investments; - substantial damages and bankruptcies of financial institutions; - gradual decrease in internal demand and business activity. At the same time, in the third quarter 2008 in connection with decrease in economic activity and demand reduction worldwide owing to aggravation of financial crisis, and also a sharp turn of the prices in the world commodity markets, inflationary pressure in the world everywhere started to decrease that should is brightly expressed in 2009.

Figure 14. Money aggregates Note: developed by author according to The National Bank of Kazakhstan

Nowadays one of the important and urgent problems of economic development of Kazakhstan is the efficiency of functioning of the bank system. Activity and stability of the latter is not only a key condition for the existence, but the most important factor of economic development. The bank system is the fastest growing sector of the economy of Kazakhstan. The level of penetration in the economy (about 90% of GDP) is comparable with indicators of the European Unions countries. Kazakhstan's banking system, felt the crisis in 2007, particularly hard affected during the crisis period of 2008-2011. In many respects it has been connected with fundamental lacks of its institutional basis, the main things from which were: inadequacy of the mechanism of is standard-legal regulation; reliance on external funding and crediting of mainly risk branches (basically, building and trade); absence of competent system of risk assessment and quality of a loan portfolio. All these factors in aggregate with an ill-considered risk management policy of a number of banks had a negative effect and set the banking system on the brink of default. As a result of massive government support of capital and liquidity managed to avoid bankruptcy, to solve the problem of tinning of external debts, restructure the debt of troubled banks and stabilize the banking sector. At the moment, there are 39 banks operating in Kazakhstan, 22 of them have large foreign shareholders, 17 banks are subsidiaries of foreign banks. Banks of Kazakhstan were closed in the structure of the internal market: the dominant sources of development- equity capital and deposits of residents. For four years (Q1. 2005 - Q1. 2008), the banks increased their foreign borrowing from $ 8.6 billion to 45.1 billion dollars. Then a dramatic decline came foreign loans of the banking sector declined to 19.6 billion at the first quarter of 2011. This year Kazakh banks have to pay the debt in the amount of $ 4.2 billion. The entrance of foreign credit in the economy is open, not trough Kazakhstans institutions, but through wholly owned subsidiaries of large foreign banks. In the three years of crisis and post-crisis period, the scale of the assets of subsidiary banks in the sector has grown considerably. Since January 2008, the share of subsidiaries of foreign banks by assets of all Second Tier Banks (STB) Kazakhstan has changed from 12.4% to 18.6%. Now there is a tendency for largerscale presence of foreign institutions in the banking sector. The assets of STB increased by only 2.3%, and assets of subsidiary banks by 5.5%, during the five months of this year. If the share of subsidiaries of foreign banks by assets of all STB is less than a fifth, in the context of standard assets of banks, this group has more massive share of 26.8% (12.69 billion dollars in absolute terms) of the entire banking sector. The value of high-quality assets of subsidiaries increased on 5.3% (May 2010-2011). Better Portfolios "subsidiary banks" allow them to grow more mobile in the Kazakh market, as they spend much less on a redundancy. It should be noted that the standard assets grow in this group also faster than the market. On the whole the banking sector has reduced the standard assets by 11.2%, and in a group of subsidiaries of foreign banks standard assets increased by 10.7%.

The main reason is debt of banks to foreign financial institutions. And due to the crisis the burden of the debt became more complicated. First of all recent devaluation of the national currency tenge in February has inauspicious influenced on this foreign obligation. According to the estimation of the rating agency Moodys devaluation provoked a growth of assets riskiness by 54% and increase of debt in fact by 25-30%. Really repayment of external owing became more expensive as most of operations with customers in banks are conducted in tenge. Thus banks had to pay off $12 billion - 1440 billion of tenge (120 KZT/USD) and now due to devaluation banks must to repay 1800 billion of tenge (150 KZT/USD).

Figure 15. Total External debt of Kazakhstan including Banks Note: developed by author according to The National Bank of Kazakhstan The strong external position also helped the central bank to maintain exchange rate stability, while declining inflation enabled it to cut its policy rate. Although at the beginning of 2011 the authorities announced a switch to a managed float, in practice the central bank implicitly maintained a narrow band of 1 percent around 146.5 tenge against the US dollar. Kazakhstans headline inflation slowed to 4.6 percent (y/y) in March 2012 from 7.4 percent in December 2011. Falling food price inflation was the main contributor to this deceleration. As inflationary pressures have eased, the central bank cut its official refinancing rate from 7.5 percent to 6.5 percent in April 2012. Establishment of the customs union between Kazakhstan, Russia and Belarus in January 1, 2010 marked a major change in the path of regional integration with important implications for Kazakhstan. The establishment of a customs union entailed a doubling of the weighted average tariff and an increase in tariff dispersal. The rise in protection will have efficiency costs in a resource-exporting country, where diversification is reliant on international integration. However, the impact of greater protection may be offset by improvements in trade facilitation and reductions in non-tariff barriers.

Figure 16. Exchange rate Note: created by author based on The National Bank of Kazakhstan The credit market for the year (from May 2010 to May of the current) is declining by 1.2%, banks are subsidiaries of foreign banks increased their contrast to lend 14.4%, which was more than 8.83 billion dollars. Thus, the share of this group in the credit market has grown over the year by almost 2% and 14% of the total mass of loans. Funds of the subsidiary banks are successful in the Kazakh market, attracted 18.6% of total deposits. Over the past five months deposit market grew by 2.3% from 6960 to 7121 billion, the number of deposits in the accounts of subsidiaries increased from 1288 to 1331 billion tenge. Accounts of subsidiaries of foreign banking institutions concentrated on deposits over $ 9.13 billion, with gains for the year amounted to over 1.27 billion dollars. Despite some stabilization, the threats of destabilization, as external and internal to the Kazakh banking system remain constant. The recent trends reveal some signs of domestic credit market revival. In 2011, the outstanding credit provided by the banking sector to the economy was 15.6 percent higher than in 2010, with new lending 52 percent higher than a year ago. At the same time, lending in foreign currency is going down. The share of lending in foreign currency has declined to 36 percent reflecting in part regulatory efforts to curb foreign currency lending. If oil prices keep rising, they will put an upward pressure on the Kazakh tenge that may strengthen the de-dollarization trend. The Kazakh banking system has been strongly affected by the global financial crisis. Reliance on external funds by the largest banks under conditions of limited refinancing opportunities and narrow domestic markets have led to slower credit activities and declining financial indicators for all the banks. Since the autumn of 2008 declining revenue and worsening asset quality became the dominant trends in the Kazakhstan banking system.

Figure 17. International Reserves and National Oil Fund Assets Note: created by author based on The National Bank of Kazakhstan First of all, external threats come from the world financial system, stability of which is still rather weak, even some recovery of world economy. Another external threat is connected with preservation of the high level of sensitivity of the banking system to price fluctuations of export commodity and changes in the emerging market risk perception.

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revenue expenditures surplus/deficit

Figure 18. State budget, KZT bn Note: developed by author based on Ministry of Economic Development and Trade

First of all, banks carry out a reorientation on short-term loans in order to ensure the quick assets turnover and maintain the liquidity for external debt repayment. Also because of borrowers insolvency most of banks have to sell their collateral, cut down expenses: reduce the number of staff, shut down or merge branches. The second way is a support of the government. According to the crisis management program the government of Kazakhstan supports the banking system, small and medium enterprises, and agricultural sector of the country by allocation the appointed sum of money. There is internal credibility along with the danger of external threats. Average rating of banks is in category B (not investment grade). Currently, bank financing is limited to providing short-term resources to finance working capital and restructure the existing debts of enterprises. This low-key approach to long-term financing is explained by 2 main factors - the lack of long resources to finance projects and the lack of quality borrowers. Another major internal threat to the banking system is based on the quality of loan portfolio. Deterioration in the quality of loan portfolio and the restructuring of its receivables firstly affect the financial condition. Restructuring of all bank loan portfolio, no doubt, will question the existence of individual banks, which are either closed or conduct a merger with the more successful competitors.

Figure 19. Banks Lending Flows and Stock Note: The World Bank The process of restructuring the loan portfolio partially is prevented by the tax laws. According to Tax Code, cutoff of bad loans from the balance causes the return of provisions, resulting in an additional tax. Now the Government is considering the abolition of the provision and appropriation of amendments to the Tax Code of RK.

Another obstacle to getting rid of nonperforming loans is the absence of market mechanisms to work with liens, transited to private banks after the borrowers defaults. Thus, the implementation of a complex bank resolution, aimed at reducing the share of nonperforming loans, is inhibited by the current system of tax administration, legal and regulatory frameworks and lack of market sales of lowquality assets.

Figure 20. Banks ROA and ROE Note: developed by author according to Committee for the control under the NBK An important condition of renovation is a gradual reduction of state support of the banking sector. Of course, the withdrawal of deposits of state structures from banks, the reduction of equity should be commensurate with the need to maintain economic growth. It is necessary to maintain a balance between keeping inflation under control and support the banking sector. After a period of continued growth, supported mainly by the inflow of foreign loans, growth has now slowed substantially, from a 30% increase in 2007 to negative 5% in 2008. During the global liquidity crisis Kazakh banks did not have any alternative opportunities to draw relatively cheap foreign funds. In the first half of 2009 the banking trends were mixed regarding changes in asset quality and other important indicators. If we look at the dynamics before the start of 2009 changes in the indicators were due to external funding, but in late 2008 early 2009 they were affected mainly by the decline in asset quality and government anti-crisis measures to support the economy and the banking sector. In the first quarter of 2009 the indicators were primarily affected by the actions of the government and state funds to support the banking system by adding capital to a number of systemic banks. In particular, the charter capital of Kazcommercebank and Halyk bank was increased by 25%; the government also significantly boosted the capital of BTA bank and Alliance bank.

Unresolved non-performing loans (NPLs) are now the biggest concern for the financial sector and a significant problem for the private sector.

Figure 21. Banks Non-performing Loans and Provisions Note: The World Bank As of end-February 2012, banks recognized NPLs in the amount of US$ 24 billion (33.8 percent of total loans, or 13 percent of GDP), but informal estimates place NPL figures at higher levels. Half of NPLs are concentrated in the three failed and nationalized banks. Thirty one percent of the credit portfolio has been set aside as provisioning against non-performing loans. While this provisioning may seem sufficient to maintain stability in the financial sector, these resources that could have been used for new lending are being tied up. This impedes private sector enterprises from making new investments and obtaining sufficient working capital. At the same time, high loan losses have made banks overly risk averse, demanding high levels of collateral and reducing the tenor and volume of credit available. Limited tenors reduce firms' ability to finance long-term capital investments required to support the country's economic diversification objectives. Under these conditions, when the search of tools providing sufficiency of bank capital is complicated, funding sources are reduced and government control is tightened, significant controlled access to credit, increases the uncertainty in the Kazakh banking system and risks to economic growth downsides. This means that today the sources of reviving the Kazakh economy are mainly outside of the banking sector. And if the bank system grew faster than real sector of the economy in the pre-crisis, but today it hampers its development and does not meet the needs. So, the main factors affecting the banking system in the short and medium term are: Further decline in the quality of assets; Decline in revenue and an increase in the number of unprofitable banks;

 Less interest from foreign investors in Kazakhstans banking syst em due to the fact that a number of banks stopped making payments on external liabilities and started restructuring; Growth of risks due to noneconomic regulation of the banking system from the government. To counter the phenomena of bank stagnation must change their business model and follow reforming directions: Conducting upgrade (modernization, renovation, re-evaluation) of the business model of banking activities. Adaptation principles should be established in business model, continuously evaluating in compliance with the new economic conditions. Development of new strategies to reach markets. Optimization requires the presence in the markets of different banking products and (or) services, expanding their range and increase market supply, including at regional level. Optimization of operational flexibility. Necessary to increase the efficiency of banking due to the flexibility of the structure and optimal use of resources, the use of LIN-approach (lean production, the philosophy of "lean production") to create a new operating system. Improving the quality of risk management process. It should change the quality of implementation of the regulatory requirements set market risk assessment and develop a robust integrated system of internal control and planning. Optimizing access to sources of funding and location. The growing importance of domestic savings in the condition of limited financing dictates the need to find new ways to access funding and allocation of funds to provide greater flexibility and stability. Strengthening membership of the top managers. It is necessary to maintain and keep the team leaders who can work in difficult economic and organizational conditions, and ensure the effective use of independent directors. Strengthening the system of corporate governance principles, approaching to the international standards. Also it is necessary to restore and maintain the confidence of international financial institutions, potential investors and customers by ensuring the transparency of financial and non-financial information and improve the communication process. Today experience of crisis period and post-crisis development require transition of bank system to a qualitatively new model of activity, which becomes the foundation for strengthening the regulatory role of state in the country's financial sector, based on the principles of state-private partnership, counter recurrence, legislative regulation. The Government's strategy for diversification and competitiveness of the economy is anchored in the recognition of the paramount role of the private sector. Though diversification towards non-extractive tradable has been part and parcel of Kazakhstans development strategy, actual success has so far been limited. The economy was, and remains highly resource-dependent, with manufacturing accounting for 11 percent and agriculture for 5 percent of GDP. The diversification

agenda proved difficult in the face of booming commodity prices leading into the crisis. The GoK post-crisis recovery program puts a major emphasis on increasing the non-oil sectors contribution to growth. Thats why business is likely to be more optimistic as a result of a huge support from the Government.
industry
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I IIIIIIVVVI VII VIII IXXXI XIII IIIIIIVVVI VII VIII IXXXI XIII IIIIIIVVVI VII VIII IXXXI XIII IIIIIIVVVI VII VIII IXXXI XIII IIIIIIVVVI VII 2008 2009 2010 2011 2012

Figure 22. The balance of business confidence, % Note: developed by author according to The Agency of statistics of the Republic of Kazakhstan So, Kazakhstan has rebounded well from the economic recession that affected the country in the first half of 2009. Rising commodity prices and the expansion of the oil industry have helped to revive the economy with continued growth predicted, barring a dramatic decline in oil prices. However, most non-resource sectors of the economy continue to suffer from low productivity and competitiveness, and the country remains vulnerable to commodity price fluctuations.

2.2 Anti-crisis measures conducted by the National Bank of Kazakhstan during the crisis The national Bank of the Republic of Kazakhstan represents the uniform centralized structure with the vertical scheme of submission. Legal status of National Bank of the Republic of Kazakhstan is fixed in the Law of the Republic of Kazakhstan from March 30, 1995 of No. 2155 About National Bank of the Republic of Kazakhstan according to which the central bank of Kazakhstan within provided to it economic acts of powers is independent in the activity. Bodies of representative and executive power haven't the right to interfere with activities of National Bank of Kazakhstan, its branches, representations and the organizations for realization of its legislatively fixed powers. The national Bank of Kazakhstan coordinates the activity with the Government of the Republic of Kazakhstan. The national Bank and the Government are obliged

to inform each other on prospective actions and the reached results having nationwide value, and to carry out regular consultations. The national Bank of Kazakhstan considers economic policy of the Government in the activity and promotes its realization if it doesn't contradict performance of its main functions and monetary policy implementation. The chairman of National Bank or one of his deputies has the right to participate in Government meetings with the right of an advisory vote. The government doesn't bear responsibility according to obligations of National Bank, also as well as the National Bank doesn't bear responsibility according to Government obligations, except for cases when it takes up such responsibility. Main objective of National Bank of Kazakhstan is ensuring stability of the prices to the Republic of Kazakhstan. For realization of a main objective the following tasks are assigned to National Bank: - development and carrying out monetary policy of the state; - ensuring functioning of payment systems; - implementation of currency regulation and currency control; - assistance to ensuring stability of a financial system. According to the Law of the Republic of Kazakhstan No. 2155, the monetary policy is carried out by National Bank of Kazakhstan by establishment: - official rate of refinancing; - levels of rates of compensation on the main operations of a monetary policy; - standards of the minimum reserve requirements; - in exceptional cases direct quantitative restrictions on level and volumes of separate types of operations. With a view of monetary policy realization the National Bank of Kazakhstan carries out the following types of operations: granting loans, reception of deposits, currency interventions, release of short-term notes of National Bank of Kazakhstan, purchase and sale of the state and other securities, including with the right of return repayment, an inventory of commercial bills, other transactions of the decision of Board of National Bank of Kazakhstan. In 2004 according to the Decree of the President of the Republic of Kazakhstan from December 31, 2003 of No. 1270 About further improvement of system of public administration of the Republic of Kazakhstan from system of National Bank of Kazakhstan the independent structure - Agency of the Republic of Kazakhstan on regulation and supervision of activity of the financial market and the financial organizations which together with which the National Bank of Kazakhstan carries out control and supervising functions behind a banking system of the republic was allocated. Since August, 2007, the RK National Bank carried out a number of measures for support of liquidity of a banking system. From August to December, 2007 intensive support of BVU was carried out to the period by granting short-term liquidity in the form of return a repo, the SWAP, the SWAP on the security of MRT, currency the SWAP. In August, 2007 the RK National Bank made changes to Rules about the minimum reserve requirements, the bases of reserve obligations directed on

reduction and expansion of structure of reserve assets that should allow to banks of the second level to liberate money in addition. In 2008 the RK National Bank the list of mortgaging providing on refinancing operations was twice essentially expanded. Possibility of negative consequences as a result of influence of effect of infection caused of change of prudentially standards for the purpose of decrease in level of risks of a financial system. For this reason of AFN accepted a number of the measures directed on reduction of the external economic risks, risks of liquidity and sufficiency of the capital. Besides, on October 23 the current year the Law of the Republic of Kazakhstan No. 72-IV Was passed about modification and additions in some acts of the Republic of Kazakhstan concerning stability of a financial system. This Law is directed on improvement of mechanisms of early diagnostics of risks in a financial system, expansion of competence of authorized body in case of default by shareholders of the financial organizations of requirements of authorized body on improvement of a financial condition of the financial organization; increase of requirements to executives and large participants of the financial organization with a view of increase in responsibility of the financial organization for the accepted obligations. It is necessary to allocate especially the following norms directed on maintenance of financial stability: - increase of the sum of guaranteed compensation on deposits of individuals to 1 million tenge and as a stabilizing measure to 5 million tenge till January 1, 2012 is provided. - the ban for the 2nd tier banks which do not have large participants individuals, or parental bank, and also the holding company, having a certain rating of one of the rating agencies which list and the minimum demanded rating is established by authorized body, on implementation of reception of deposits of individuals, opening of accounts of individuals is provided. Introduction of this ban is provided since 01.01.2010. - the ban on change of rates of compensation which acts within three years from the date of official publication of the specifi ed law (24.10.2008 is provided), i.e. 2nd tier banks and the organizations which are carrying out separate types of bank operations, the concluded contracts of a bank loan (including a mortgage loan) with the individuals, having not the right to change a compensation rate above the size established by conditions of contracts during specified term. - the norm according to which the Government of the Republic of Kazakhstan in coordination with authorized body has the right to make the decision on acquisition by the Government or national management company of the declared stocks of 2nd tier banks at a rate of not less than ten percent from total of the placed actions with a view of early response to the arisen problems in 2nd tier banks expressed in essential violation of prudentially standards and (or) other obligatory norms to observance and limits is provided. In case of improvement of a financial condition of 2nd tier banks, the Government takes measures for implementation of the acquired stocks of 2nd tier banks.

Deterioration of an internal environment and decrease in cumulative demand were negatively reflected in activity of non-primary branches of economy, having reduced their profitability and solvency. More all suffered those branches of economy which more others need continuous replenishment of current assets at the expense of crediting: trade, services, construction sector. The negative effect of crisis also noticeably affected the enterprises of small and medium business. These factors led to fast deterioration of credit portfolios of the majority of the banks, lowered rates only in the second half of 2009. In 2009 the steady tendency of decrease in inflation was noted. Low business activity, stagnation of credit activity of banks, low growth rates of the monetary income of the population, a limited consumer demand served as major factors of decrease in an inflationary background in economy. Following the results of 2009 inflation developed at level of 6,2 % (drawing 2) that in 1,5 times it is less in comparison with inflation of 2008 (December, 2008 by December, 2007 of-9,5 %). Mid-annual inflation made 7,3 %. In 2009 delay of annual inflation occurred against decrease in growth rates of the prices for foodstuff and paid services whereas growth rates of the prices for nonfoods were accelerated. Food stuff became more expensive for 3,0 % (in 2008 for 10,8 %), nonfoods - for 8,6 % (for 5,7 %), paid services to the population - for 8,4 % (for 11,4 %). Delay of inflationary processes in 2009 allowed National Bank to pursue a monetary policy directed on ensuring of stability of an exchange rate of tenge and stability of financial sector of the country.

Figure 23. Tenge Devaluation and Maintenance of the Exchange Rate Stability Note: National Bank of Kazakhstan

As shown above, in February, 2009 the National Bank established a new corridor of an exchange rate of tenge at level of 150 tenge for dollars +/-3 %. Onestage change of an exchange rate allowed to reduce considerably devaluation expectations, to improve a condition of the balance of payments, to keep gold and foreign exchange reserves of National Bank. In the domestic currency market in 2009 the National Bank acted mainly as the seller of foreign currency. For 2009 net - sale of National Bank in the domestic currency market made 5,4 bln. dollars. Thus, if from January to October the National Bank provided the offer of foreign currency in domestic market, in November-December, 2009 the National Bank performed operations on purchase of foreign currency in the domestic currency market which volume during this period made about 4 bln. dollars. In 2009 the National Bank took additional measures for ensuring stability in the financial market. Measures for granting to banks of short-term tenge liquidity, and also for improvement of system of refinancing of banks by National Bank were taken. In 2009 the National Bank provided refinancing loans to banks by means of operations of return of a repo and in January-February, 2009 - operations SWAPS. In March, 2009 the National Bank stopped carrying out operations a currency SWAP and the SWAP on the security of the remains of money on correspondent accounts of banks in National Bank(Figure 24 ).

Figure 24. NBKs refinancing operations (turnover) Note: National Bank of Kazakhstan As of the end of 2009 the volume outstanding banks of debt to National Bank on operations of return of a repo made 404,9 billion tenge. The list of mortgaging providing was corrected at carrying out operations of return by a repo which includes the state securities, bonds of the national companies of Kazakhstan, the foreign states, the international financial organizations, JSC Kazakh mortgage company, JSC Kazakhstan Development

Bank, JSC Eurasian Bank of Development, and also debt securities of the banks which issuers are in direct 100 % of a property at the state or JSC National Welfare Fund Samruk-Kazyna, or JSC Kazagro. As a result of the measures undertaken by National Bank for 2008-2009 on ensuring stability of financial sector the situation with tenge liquidity in the banking sector considerably improved. As a result, in the second half of 2009 demand increased from banks by operations of National Bank on liquidity withdrawal. In spite of the fact that for 2009 in comparison with 2008 the volume of the let-out short-term notes decreased in 2,0 times and made 1,4 trillion tenge, their volume in the address in 2009 grew by 51,6 % to 473,3 billion tenge. Withdrawal of liquidity of banks on 1,3 trillion tenge for 2009 became a result of operations of National Bank in domestic market. Also National Bank involved deposits of the Ministry of Finance in tenge for total amount of 5 732,8 billion tenge on an average rate of 0,25 % per annum, average term of attraction made 7 days. In 2009 the National Bank gradually lowered an official rate of refinancing from 10,5 % to historically minimum level - 7,0 %. Since March 3, 2009 standards of the minimum reserve requirements for banks were lowered from 2 % to 1,5 % according to internal obligations of bank and from 3 % to 2,5 % according to other obligations of bank. This decrease by an assessment liberated about 50 billion tenge of liquidity. Since November 30, 2009 with a view of regulation of short-term liquidity for the banks which are in process of restructuring, separate standards of the minimum reserve requirements at a rate of 0 % for internal obligations and 0 % for other obligations of bank were established [26]. Increase in the remains on correspondent accounts of banks in foreign currency in National Bank and receipts of currency into Government accounts in National Bank were partially neutralized by operations on currency sale in the domestic currency market and operations on service of an external debt of the Government. As a result pure foreign currency reserves (hard currency) for 2009 grew by 13,0 %. Assets in gold as a result of growth of its price in the world markets grew by 25,0 %. In 2009 systematic monitoring of compliance of activity of external managing directors by assets of National fund to restrictions of investment strategy was made. Control of observance of the requirements established in Investment strategy on management of gold and exchange assets was daily carried out. Profitability calculation by gold and exchange assets of National Bank and the assets of National fund being in independent and external management was daily carried out. Within implementation of the Joint action plan the National Bank signed contracts of purchase and sale of bonds of JSC National Welfare Fund SamrukKazyna from February 2, 2009 and JSC Kazagro from February 18, 2009, and carried out repayment of these bonds for the sum of 480 billion tenge and 120 billion tenge respectively. Also, according to point 1 of the Minutes of Council for

management of National fund No. 01-7.14 from November 23, 2009 the National Bank signed the contract of purchase and sale of bonds of JSC FNB SamrukKazyna from December 8, 2009 and carried out repayment of these bonds for the sum of 150 billion tenge. According to the resolution of Board of National Bank from January 28, 2009 of No. 6, for the purpose of minimization of risks, and also increase of liquidity of assets of National fund since April 1, 2009 average term before repayment of securities entering into a reference portfolio for a portfolio of bonds was reduced. So it was changed with: Merrill Lynch US Treasury (GOQO) - 45 %, Merrill Lynch EMU Direct Governments (EGOO) - 30 %, Merrill Lynch UK Gilts (GOLO) - 10 %, Merrill Lynch Japan Governments (GOYO) - 10 %, Merrill Lynch Australian Governments (GOTO) - 5 % on: Merrill Lynch U.S. Treasuries, 1-5 Yrs (GVQO) - 45 %, Merrill Lynch EMU Direct Governments, 1-10 Yrs (EGOS) - 30 %, Merrill Lynch U.K. Gilts, 1-10 Yrs (G5LO) - 10 %, Merrill Lynch Japan Governments, 1-10 Yrs (G5YO) - 10 %, Merrill Lynch Australian Governments, 1-10 Yrs (G5TO) - 5 %.

Figure 25. NBKs refinancing operations (balance) Note: National Bank of Kazakhstan According to the Decree of the President from March 27, 2009 of No. 777 for the purpose of employment, prevention of essential growth of unemployment and creation of conditions for sustainable post-crisis development in 2009 from National fund during 2009 it was withdrawn in the form of a target transfer of 261,5 billion tenge .

For the purpose of a diversification of custody storage of assets of National fund in January, 2009 it was translated assets at a rate of more than 3 bln. dollars into the account of a stabilization portfolio in Federal Reserve Bank of New York. In the second quarter 2009 it was translated assets denominated in euro for the account of a stabilization portfolio in Clearstream. According to the Rules of a choice of external managing directors assets of National fund approved by the resolution of Board of National Bank No. 66 annually carry out procedure of an assessment of efficiency of activity of external managing directors of National fund on the basis of results of the last 2-3 years. By results of the carried-out analysis, the resolution of Board of National Bank No. 50 interrupted agreements on investment management with the following external managing directors: 1. Under the mandate Global bonds - Blackrock Financial Management, Inc. 2. Under the mandate Global actions - Alliance Capital Limited. The portfolio of the external managing director of National fund under the mandate Global bonds was transferred in independent management of National Bank, whereas a portfolio of the external managing director of National fund under the mandate Global actions - to the external managing director who has shown the best results of this mandate, - JPMorgan Asset Management. With a view of a diversification, and also management efficiency increases by assets of National fund among managing directors of assets of National fund, considering that in recent years the program of external management was considerably reduced by assets of National fund, the decision on its expansion was made. In this connection, the Resolution Board of National Bank No. 105 on November 30, 2009 was accepted. Considering uncertainty in the world financial markets, for the purpose of minimization of financial risks, at the initiative of National Bank, and also from approval of Council for management of National fund of the resolution of Board of National Bank of the Republic of Kazakhstan from November 30, 2009 of No. 107, changes and the additions providing change of tactical distribution of a savings portfolio of National fund on an index, consisting for 80 % from bonds and 20 % from actions, and also decrease in a share of US dollars in reference currency distribution of a savings portfolio of National fund from 45 % to 40 % at the expense of increase in a share of euro from 30 % to 35 % were made. Currency distribution of gold and exchange assets according to the resolution of Board of National Bank No. 104 from November 30, 2009 was similarly changed also. In December, 2009 in response to the decision of Board of National Bank No. 104 from November 30, 2009 operations on change of currency distribution of an investment portfolio towards reduction of a dollar component from 45 % to 40 % in favor of increase in a component in euro from 30 % to 35 % were performed. On July 4, 2009 the Law of the Republic of Kazakhstan Was passed about modification and additions in some acts of the Republic of Kazakhstan concerning currency regulation and currency control, developed with a view of further improvement of system of currency regulation and currency control. The law installed on August 11, 2009, provides:

1) further liberalization of currency regulation and simplification of administrative procedures; 2) simplification of requirements of repatriation of currency revenue and strengthening of responsibility for non-compliance with the requirement of repatriation; 3) expansion of a range of measures of currency regulation which can be applied in case of threats of safety of the country and stability of a financial system. With a view of liberalization of currency regulation and simplification of procedures of currency control by the Law it is provided: 1) an exception of licensing of activity on implementation of retail trade and rendering of services for cash foreign currency (duty free shops, realization of the goods and services to passengers at international transport); 2) removal of restrictions on operations with affiliated gold between residents; 3) cancellation of the requirement of the notice of opening of bank accounts in foreign banks for individuals; 4) possibility of increase in threshold values on registration, the notice and certification by adoption of subordinate regulatory legal acts; 5) possibility of reduction of the list of the operations which are subject to registration and the notice, by adoption of subordinate regulatory legal acts; 6) simplification of procedure of the notice of operations of clients for banks and professional participants of securities market. With a view of improvement of administrative procedures and strengthening of responsibility for non-compliance with the requirement of repatriation by the Law: 1) concepts the repatriation requirement and repatriation term are specified; 2) the right is provided to the resident as the party of the foreign trade contract, independently to count repatriation term, proceeding from terms of the contract; 3) the exhaustive list of cases which don't assume revenue transfer into accounts in the Kazakhstan banks is established, but are equated to execution of the requirement of repatriation; 4) responsibility for a non-return of currency means under the foreign trade contracts is specified. In particular, administrative responsibility comes at excess of the sum of a non-return of an equivalent of 50 thousand dollars (before 10 thousand dollars), and criminal - if the sum of a non-return exceeds 10 thousand MRP (before 5 thousand MRP). The law is expanded and anti-recessionary measures regarding introduction of currency restrictions which can be entered by the Head of state for elimination of threats of safety of the Republic of Kazakhstan and stability of its financial system are more specifically defined. The concept of a special currency mode is entered, the concrete list of measures which can be applied within a special currency mode is given, duration of the period of its action is limited and the responsibility for violation of requirements of a special currency mode is defined. Besides, with a view of protection of interests of the population as consumers of financial services the Law entered the norm granting the right to National Bank

on establishment of a maximum permissible margin on operations, carried out by exchange offices. Thus, the passed Law, on the one hand, contains the norms simplifying business, and, with another, applications of anti-recessionary measures raising efficiency in case the economic situation demands their introduction. With a view of implementation of the Law by National Bank the following resolutions of Board of National Bank are adopted: 1) from July 24, 2009 of No. 68 About recognition become invalid the resolution of Board of National Bank of the Republic of Kazakhstan from September 15, 2005 of No. 115 About the statement of Rules of licensing of implementation of retail trade and rendering of services for cash foreign currency in the Republic of Kazakhstan [41], in connection with the exception provided in the Law of a mode of licensing of activity on implementation of retail trade and rendering of services for cash foreign currency; 2) from August 24, 2009 of No. 78 About the statement of Rules of establishment of limits of a deviation of a buying rate from a selling rate of foreign currency for tenge on the operations which are carried out through exchange offices in which the mechanism of realization of function of National Bank is determined by establishment of limits of a deviation of a buying rate from a selling rate of foreign currency for tenge on the operations which are carried out through exchange offices and an order of establishment by National Bank of the most admissible margin on operations of exchange offices and types of currencies concerning which such requirements can be established; 3) from August 24, 2009 of No. 77 About modification and additions in the resolution of Board of National Bank of the Republic of Kazakhstan from August 17, 2006 of No. 86 About the statement of Rules of implementation of exportimport currency control in the Republic of Kazakhstan in which increase of threshold value on certification of transactions from an equivalent of 10 thousand dollars to an equivalent of 50 thousand dollars, and also simplification of requirements of repatriation of currency revenue by specification of the concept "repatriation", repatriation term, and also specification of application of administrative and criminal liability for not return from abroad means in national and foreign currency is provided; 4) from August 24, 2009 of No. 76 About modification and additions in the resolution of Board of National Bank of the Republic of Kazakhstan from December 11, 2006 of No. 129 About the statement of Rules of implementation of currency transactions in the Republic of Kazakhstan. The resolution provided increase in threshold value for currency transactions of movement of the capital at which excess they are subject to registration or the notice: for operations on capital outflow threshold value is increased from an equivalent of 50 thousand to an equivalent of 100 thousand dollars, for operations on capital inflow - from an equivalent of 300 thousand to an equivalent of 500 thousand dollars. With a view of optimization of procedures on providing information on payments and (or) transfers of clients by authorized banks to National Bank the resolution provided submission of information on payments on the currency

transactions which are subject to the notice (opening of accounts by individuals in foreign banks; payments between residents and nonresidents at implementation of calculations for export (import) of works) in the form of a reporting form. In crisis along with consecutive cancellation of currency restrictions of one of problems of liberalization there was an improvement of system of statistical monitoring of currency transactions, and also increase of efficiency of control procedures with a view of observance by residents of requirements of the currency legislation, including strengthening of administrative responsibility. Thus the most part of control functions in the field of implementation of currency control is delegated now on regional level of territorial branches of National Bank. The devaluation of the tenge which has been carried out in February, 2009, demanded acceptance of a number of measures for situation stabilization in the currency market of the currency exchange, arisen in connection with speculative operations with cash foreign currency. With a view of improvement of the competitive environment in the organized market of a currency exchange, protection of interests of the population and prevention of carrying out foreign exchange operations out of the organized market of a currency exchange the National Bank took the following measures: - increase of requirements to the size of the authorized capital, caused by growth of volumes of the authorized organizations of operations made in exchange offices with currency and, respectively, increase in accompanying risks. The increase in authorized capital reflects need of strengthening of technical equipment of exchange offices, increases of transparency of activity of the authorized organizations, and also rendering of services to the population in higher qualitative level. - establishment of the right of National Bank on introduction of limits of a deviation of a buying rate from a selling rate of foreign currency for tenge. It is supposed that such deviation will be entered for an excessive demand of the population for foreign currency with a view of protection of interests of the population, as consumers of the services rendered by authorized banks and the authorized organizations in the organized market of a currency exchange, and also prevention of development of the "shadow" market. - responsibility for violation of requirements of the currency legislation at carrying out the exchange operations providing application of administrative sanctions. For ensuring removal of social tension at the population, arisen in connection with speculative operations with cash foreign currency, explanatory events through mass media are held, the corresponding letters are sent to Presidential Administration, Office of the Prime minister, Independent Association of businessmen, People's democratic party Nur Otan, National economic chamber of Kazakhstan the Atameken Union and to the authorized organizations. Besides, on a constant basis monitoring of exchange rates is carried out, the monthly analysis of activity of exchange offices is made, the statistics of violations in the field of exchange operations is conducted.

Anti-recessionary measures of National Bank in the field of export-import currency control in 2009 it was directed on further implementation of the upgraded version of export-import currency control. Regarding the measures undertaken by National Bank with a view of decrease in load of business within export-import currency control, during 2009 the following work was done: - since November 1, 2009 threshold value at which excess transaction certificate registration is necessary, is increased from an equivalent of 10 thousand dollars to an equivalent of 50 thousand dollars. According to data of 2008 it will provide reduction more than on a third of number of pass ported trading contracts, generally the enterprises of small and medium business. Thus for transaction certificate closing providing any documents from participants of foreign economic activity isn't required; - the transaction certificate form is simplified by a way of an exception of excessive columns and sections; - in June, 2009 within the working group on development of the new Customs code of the Republic of Kazakhstan article 295 edition according to which taking into account the Control system of risks the copy of the transaction certificate is provided in the list of the additional documents represented at release of the goods by only certain categories of participants of foreign economic activity (a yellow and red corridor) is coordinated; - in September, 2009 with assistance of Association of financiers of Kazakhstan the meeting with representatives of large banks concerning tariff policy, including regarding collection of collecting according to the transaction certificate was conducted. Moreover, in February 2009 a Law of the Republic of Kazakhstan on issues of organization and operating of Islamic banks and organization of Islamic financing was adopted. The Law covers issues of operating of Islamic banks, Islamic investment funds, and issuance of Islamic securities in Kazakhstan. The Law specifies following types of Islamic securities: shares and common stock of Islamic investment funds, Islamic lease certificates, and Islamic participation certificates. Islamic lease certificates are issued to finance purchase of real estate, ground areas, etc. The Governments of Kazakhstan and the UAE have signed an agreement to launch Al Hilal Bank in Kazakhstan. In March, 2010 the first Islamic bank was opened in Kazakhstan. At present the legislative field for the action in the republic of Islamic insurance (takaful) companies is developed. So, briefly we can classify anti-crisis package conducted by the National Bank of Kazakhstan as follows: 1. A Joint (the Government, the National Bank, the Financial Supervisory Agency) Two-Year Action Plan for stabilizing of the economy and financial system: (Funding (USD 10bln.) has come from the National Oil Fund) provision of public support to the top four banks steps to aid the completion of unfinished residential construction projects and spur housing demand financial assistance to the SME and agricultural sectors

 increased public investment in the industrial sector 2. A new Tax Code was adopted (on January 1, 2009): corporate income tax has been reduced to 20% mineral Extraction Tax replaces the royalties on oil production the VAT was reduced from 13% to 12% 3. The Government, in cooperation with the local authorities, provided employment for workers temporarily unemployed. 4. The sharp deterioration of the balance of payments demanded the devaluation of national currency Tenge. Reasons for Tenge devaluation were: further supporting of Tenge could bring to the full depletion of foreign exchange reserves; main trade partners of Kazakhstan devalued their currencies; domestic producers and exporters needed support of their competitiveness. The main goals of financial sector development in post-crisis period were defined: financial sector stability creating conditions to prevent effect of instability factors and negative events which were detected during the last financial crisis stimulation of investment activity restoration of trust and confidence in the financial sector by both investors and consumers of financial services financial resources mobilization in the post-crisis period (attracting of institutional investors funds by elaborating public private partnership as a main mechanism. It will make possible to implement and develop the potential of private initiative and preserve the function of the state in socially significant sectors of the economy; development of the instruments of Islamic financing) consolidation of the financial sector supervision and regulation system (implementation of the counter-cyclicity principle in regulation (for financial leverage, owner's capital, reserves and liquidity, and reserve requirements; the gradual increase in minimum size of a capital, especially for banks; strengthening of the risk control of systemically important financial institutions, considering their impact on the other financial organizations, markets and instruments) strengthening of the mechanisms of rights protection for investors and consumers of financial services (tightening of the requirements for board members of financial institutions; establishment of black lists of financial organizations, their officials, issuers, shareholders whose activity resulted in the bankruptcy of financial institutions; the quality of corporate governance and transparency of financial institutions will be improved; the bonus system of the top managers of financial institutions will be improved; the term affiliated persons will be expanded) regulation of the systemic risks (implementation of the macro prudential regulation system: early detection of risks

 differentiated approaches in regulation of financial institutions depending on their significance and their systemically important character strengthening of the role of the National Bank in providing of financial stability and implementation of macro prudential regulation through: determination of the main sectoral principles and approaches of the prudential regulation; development of anti-crisis management and losses minimization measures in a case of systemic risks realization)

PART III CRISIS MANAGEMENT AS A NEW MANAGEMENT PARADIGM 3.1 World practice on anti-crisis measures conducted during the global financial crisis For the purpose of restriction of crisis distribution the Government and central banks took various anti-recessionary measures. Thus, if during the first period of crisis as the most active measures were conducted, generally, by the developed countries of the world, the events developed in the autumn of 2008, provoked a collapse of stock markets and even stay of the auction, led to unprecedented acceptance of the considerable coordinated and emergency anti-recessionary measures and stabilizing programmers from the majority of the countries of the world. Generally the package of anti-recessionary measures was carried out in such directions as: 1) saturation of the markets by liquidity; 2) direct funding of financial institutions; 3) increase in the capital; 4) the announcement of straight lines and the hidden guarantees according to all obligations of financial institutions for the purpose of trust preservation to financial systems. Thus the majority of the accepted measures are temporary; as many states defined the time horizon (on the average for 2-3 years forward) their actions till the end of decrease in the general turbulence of consequences of crisis (Table 2).
Measures Problem: Lack of liquidity Forms and methods Short-term operations (repurchase agreements), less than a year Long-term operations (repurchase agreements), more than a year Refinancing debts Auctions on providing/placement of credits/deposits in US dollars Agreements on currency transactions the SWAP in US dollars and other currency between the central banks SWAP Operations with US dollar and other currency Non-deposit ed credits (including subordinated) through the state Increase in volumes of operations banks, Central Bank and Government deposits and terms on classic instruments Schemes of an exchange (repayment) of illiquid assets of banks on of refinancing liquid assets Extension of the list of mortgaging provided Extension of the list of the organizations contractors at the expense of brokers, dealers, credit organizations, investment banks, insurance companies and other organizations Decrease in required reserve rate Decrease in key interest rates ncrease of percent on deposits in the central banks, payment of percent on deposits or depositary certificates

Problem: Lack of trust to the financial system Continued part of Table 2 Increase in guarantees on deposits Increase of the maximum sum of compensation on the guaranteed of commercial banks deposits The announcement of guarantees Government or Central Bank guarantee on different types of according to obligations of banks financial obligations (interbank, external loans, deposits) both and other financial institutions existing and new attracted Problem: Capital adequacy to risks Recapitalization (repayment and a subscription under new or Increase of Capitalization to the available volumes of actions and a subordinated duty) adequate level Compulsory nationalization of financial institutions Granting the credits as the creditor of final instance to financial Address support institutions from the government or the central banks Improvement of quality of assets Repayment of junk assets The complex solution of problems with a funded, guaranteeing Creation of specialized institutes/funds on support of financial obligations, repayment of assets institutions and implementation of temporary management Problem: financial markets volatility Restriction of speculative Ban on carrying out short sales on all market or according to the operations in domestic markets limited list of securities, requirements to information disclosure Increase in resource base of IMF donates foreign currency Stabilization of price parameters Interventions in the domestic currency markets of the market Interventions on the organized securities markets Table 2. Measures for providing stability of the financial system Note: developed by the author based on literature review

Thus at an initial stage in most cases acceptance of a significant amount of anti-recessionary measures was apprehended by the markets negatively, giving that a signal that these measures recognize about the possible hidden scales of distribution of risk of susceptibility to development of a crisis situation (Table 3).
Monetary policy Decrease in interest rates for prevention of transition of financial 1st stage: crisis in the economic. the middle 2007 From September, 2007 to 2008 December, 2008, Fed rate is lowered in 10 times (from 5,25 % to 0-0,25 %) nd 2 stage: Emergency measures on granting March 2008liquidity September 2008 3rd stage: September 2008- Bailouts to too big to fail banks February 2009 The problem of support of economy 4th stage: leaves into the forefront. Active March-July 2009 decrease in interest rates and Stage Fiscal policy In the USA the first package of fiscal incentives (tax returns) is accepted and date of receipt of unemployment benefits is prolonged. Measures for maintenance of the market of housing begin to be developed: tax privileges and subsidizing at the expense of the state, restructuring subprime mortgages The synchronized state support according to the solution of G 20. Measures differ from the country to the country. Main components: tax privileges, subsidies for purchase of new cars instead of old, subsidies to

quantity

5th stage August 2009 2012

Dying off of emergency measures of granting liquidity. Receptions of strategy of an exit from quantitative easing

sub federal provinces, an investment into infrastructure, telecommunication, "green" economy, education, health care and so forth. Continuation of earlier accepted measures: tax privileges, investment programs, demand subsidizing. Additional measures: attention to small business and creation of workplaces.

Table 3. World practice on anti-crisis policy Note: developed by author based on literature review

Today the deflation became more serious enemy, than inflation. At the rate of percent close to zero, the central banks are compelled to use other tools and methods. They extended the activity to new contractors, started to provide the credits to investment banks and finance companies. There was a practice of delivery of the credits on more liberal conditions (non-deposited credits), for longer terms (till 6 months instead of 1 week in Eurozone). Moreover, currency swaps were widely spread between countries. Thus, in process of crisis development in developing countries opposition between the government and bodies of monetary and credit regulation accepts rather rigid forms up to resignation of the head of the central bank, and appointment to this post of officials, more loyal to the government. The main conflict in these countries consists, as a rule, in unwillingness of the Central Bank to pursue softer monetary policy. While representatives of the Central Bank are inclined to overestimate risk of inflation (and, respectively, to overestimate interest rates), representatives of the governments are inclined to overestimate risk of a deflation and unemployment (and, respectively, support lower interest rates). In developed countries in which there are stronger traditions of independence of the central banks, pressure upon the central banks from the government carries more careful and substantially informal character. However the total result is the same - increase of level of cooperation between the government and the central bank. One of explanations of this tendency is that in the conditions of crisis there was an expansion of duties of the central banks which began to make not only purely economic decisions (concerning change of level of an interest rate or an exchange rate), but also and the political decisions connected with assistance to financial institutions (in a case with the European central bank - to the sovereign states). Thus, as shows experiment of Federal reserve system of the USA, before rendering of financial support of the Central Bank it appears under the pressure of executive power which is interested in the fastest providing the help, and after under the pressure of the legislature of the power demanding carrying out check of expediency and validity of actions of the Central Bank. Emergence of claims to the Central Banks is connected with non-uniform distribution of benefits and expenses from the support program, and also that decision-making process on the matters in

modern central banks is, as a rule, opaque (in difference, for example, from decision-making in the monetary policy sphere). Crisis found a contradiction between two purposes facing the central banks, stability of the prices and stability of a financial system. They depend from each other. Price stability is reached by change of a rate of percent. But such change is capable to render a negative impact on stock market. Increase of a rate of percent brings down courses of securities, decrease - promotes increase of courses, but threatens with development of inflationary processes. From these positions quantitative easing has inconsistent impact on economy. The policy of quantitative easing is closely connected with fiscal. The injection in economy is carried out by the central banks of liquidity by purchase of the state bonds, in order words, national debt monetization. There is a threat of a sovereign default. While business is limited only to revision of sovereign ratings. So, the Fitch agency lowered a rating of a sovereign duty of Greece with A- to BBB +. The reason - a budget deficit equal of 12,7 % for gross domestic product, and the sovereign duty exceeding gross domestic product. S&P changed a rating of Spain with stable to the negative. Revision of ratings of the USA and Great Britain isn't excluded. Rescue of a financial system turns around growth of the state debt. Crisis imposes heavy burden on public finance. Reduction in production and expenses on crisis overcoming by 2014 will lead to growth of a public debt with 79 to 120 % of gross domestic product in 20 developed the countries. In October, 2010 with a view of stabilization of the financial market the meeting at the highest levels "twenty" took place. Into Great powers enter 19 largest national economies (Australia, Argentina, Brazil, Great Britain, Germany, India, Indonesia, Italy, Canada, China, South Korea, Mexico, Russia, Saudi Arabia, the USA, Turkey, France, the Republic of South Africa, Japan) and the European union. Constant participants of meetings of "twenty" are IMF, the European central bank and the World Bank. The meeting in the Canadian city of Toronto came to the end with adoption of the total declaration which points to disagreements between leading economic powers of the world concerning ways of an exit from recession and improvement both world, and national economies. Reduction of deficiency of budgets and scales of a public debt, by recognition of many participants of a forum, was one of the most topical issues of discussion. Thus a number of the countries which carried out the greatest injections in financial sector for rescue of banks in crisis - such as the USA and EU countries very carefully belonged to this idea, though recognized its efficiency As a result leaders agreed that process of reduction of a budget deficit will begin no later than 2011, and in two years it should be reduced half. Besides, by 2016 of the country of "twenty" intend to balance a ratio of a public debt and gross domestic product. On forecasts of the international financial organizations, without the decision on fight against national debt growth the relation of debt of leading economy of the world to gross domestic product will be excessively high:

- in Japan - 300 %; - in Great Britain - 200 %; - in Germany, France and Italy - about 150 %. In this regard leaders of Group of twenty decided to cut deficiencies by half by 2013, to stabilize or deduce on an accurate decreasing trajectory by 2016 the relation of a public debt to gross domestic product. G20 coordinated principles of bankruptcy of financial institutions, and also protection of taxpayers at bankruptcy. Process on carrying out country reviews in member countries of "twenty" which provides the analysis and an assessment of implementation of recommendations of the IMF on financial performance is thus already started. Among the reasons of unleashing the global financial crisis the participants of the World Economic Forum in Davos mentioned the absence of regulation and transparency on financial markets, irresponsibility, lack of real leadership and proper governance, inadequate evaluation of assets and risks. These reasons have resulted in a total lack of confidence and financial collapse. Already in 2010 another Davos forum was held with the leitmotif: Improve the State of the World: Rethink, Redesign, Rebuild. Actively discussed at the forum were the problems of increased impact of such risks to the financial stability as the following: budget crisis risks linked to growing public debts, which could evolve into a risk of sovereign defaults; problems of emergence of the second crisis wave related to markets of government securities (bonds) due to higher level of public borrowing, absorption of unreliable assets, and reduced trust in world currencies; the risk of Chinas economic slowdown, which could become a shock for worlds capital markets and, as the result, lead to emergence of the risks of unpractical capital distribution, strengthening of capitals speculative nature, occurrence of new bubbles on the asset and property markets. Subsequently, effective crisis management of the economy is to act as the guarantor of stability. To restore the health of business, the world economic community concentrates on the following goals and means of their achievement: restoring trust in the banking system through its recapitalization, cleaning up the balance sheets of commercial banks from toxic assets, and providing government guarantees; use of fiscal policy tools to stimulate the internal demand, create new jobs, and provide a social safety net; restructuring of economies through targeted long-term investing; maintaining the principle of free trade and free movement implementing reform of the global financial system (in particular, with regard to revising the role of World Bank and IMF, strengthening the interrelation between the legal and economic system, and unification of legal standards to increase integration and transparency of the international economic and financial operations). The period of a global post-crisis economic and financial stabilization is accompanied by an active search undertaken by governments of many countries to

find measures which would be adequate to the real condition of their national economies. As is generally known, particular features inherent in each of the crises make it impossible to fully project their impact on the operation of market mechanisms. Attempts of crisis regulation aimed at supporting the financial institutions and putting a clamp on the recession have continued throughout the world since early 2009. The priorities include such approaches as government measures to stimulate demand, pursuing protectionist policies and easing the tax burden (B. Obamas plan, G. Browns plan), strengthening the role of central banks and using the mechanisms of nationalization. The European Commission is in favor of actively granting tax incentives, expanding government orders and government investment. The effects of the anticrisis measures are somehow linked to the degree of development of the institutions ensuring the inter-action between the state, in the person of government agencies, and the private sector. Were selective protectionist support extended to oligarchic entities based on some political arrangements, market failures would turn into country failures. It is essential to provide the orientation towards the implementation of equal property rights, the distribution of risks, the economic interests of the state and business, as well as the appropriate streamlining, and if needed, the adjustment of both formal and informal rules, which regulate their collaboration. A reliable system of performance management of financial/investment resources, which would allow using in the optimal manner the mechanism of increasing the money supply for the purpose of maintaining domestic demand, stimulating the investment and innovation activity, creating new jobs and achieving competitive advantages for national producers, will need to be created in order to overcome the crisis phenomena, and assure sustainable and competitive growth. This would allow increasing the level of macroeconomic and financial stability, as well as reducing the dependence of domestic economic process on variations of the global market conditions.

3.2 Ways of improvement of anti-crisis packages conducted by central banks Possibilities of the governments and the central banks of the countries to realize anti-recessionary policy depended on an economic situation in precritical years. For example, the countries with a critical rate of inflation and the budgetary deficiency didn't presume at once to start to pursue stabilization soft and fiscal policy because of threat of destabilization of economy. From this point of view all countries can be divided into two groups (Table 4).

The countries which do not have problems The countries with critical problems with inflation and the budgetary deficiency 1.1. The small 1.3 The largest 2.1 The countries 2.2 Faced an countries, quickly countries in which with very big imbalance at the started to leave crisis restoration occurred problems, superheated beginning, but and to toughen policy most quickly and before the crisis managed to localize Israel, Australia, there is a danger of an (Iceland, Ireland, them and to pass to Norway overheat (The Ukraine) soft policy (Russia, developing South East Hungary). Asia). 1.2 The largest 2.3 The countries countries which are in which the blow of coming back to the first wave of crisis growth thanks to state was not so strong, but support of the USA, a loan the situation Japan, the most part was aggravated of Europe (Greece) Table 4. Country classification according to the crisis impact Note: developed by the author based in literature review

1. The countries, prior to the beginning of crisis not having critical problems. These countries could use initially stabilizing soft monetary and fiscal policy. 1.1) Rather small countries which have got to crisis under the influence of global processes, but quickly started to leave crisis. This group of the countries already started to leave stabilization measures and to lift interest rates. Examples: Israel, Australia and Norway. 1.2) The largest countries of the world in which in the last time began economic reconstruction (return to growth), but it is based mainly on measures of the state support. These countries prolong the majority of measures, except for extreme channels of granting liquidity. 1.3) The largest developing countries which returned to fast growth rates and in which now there are fears of an overheat. Example: China. 2) The countries which had critical problems. These countries were compelled to concentrate on implementation of stabilization programs by analogy to what are applied usually by IMF and which include reduction of the budgetary expenses, and also increase of interest rates for stabilization of national currency. Many of the countries in this group faced serious problems in the banking sector and were compelled to carry out nationalization and a recapitalization of banks. 2.1) The countries with initially very serious problems, still compelled to pursue the above-stated policy. These are "superheated" before crisis the Baltic countries, Iceland and Ireland, Ukraine etc. 2.2) The countries which faced problems at the beginning of crisis, but could localize them and then pursue already softer policy, first of all the monetary. Russia, Hungary treats such countries and, probably, some other not so strongly affected by crisis of the country of Eastern Europe. 2.3) The countries on which the first wave of crisis struck not so strongly, but recently obviously become candidates for realization of the policy similar to a

stabilization package of IMF. An example - Greece, candidates: Spain, Portugal, Spain (PIGS country), Mexico. The countries carried by us to type 1.2, continue to support economy actively. The group 1.1 countries in sharp stages of crisis took similar measures, but now gradually refuse policy of support of economy. The countries of the 2nd group not always could realize stabilization packages and if could, applied approximately the same measures, as well as the group 1.2 countries The majority of the countries entering into group 1.2, is compelled to continue at the moment or even to expand measures of support of economy, except for measures of granting liquidity through extreme windows and measures of insurance of the financial assets entered at peak of a crisis of confidence in the financial market. Need of extension of measures remains, despite the begun economic growth, after all the last still is based on the state support of economy (both on own measures, and on the measures accepted in other countries). Therefore the majority of measures in those sectors where problems remain, continue to be realized or last, sometimes in an expanded look (for example, tax privileges on a mortgage in the USA). Among the closed programs it is possible to note only the cash-for-clunkers program which had essential effect in the automobile market, but substantially at the expense of transfer of demand for earlier term; besides, this program was very expensive. The second direction of anti-recessionary measures is an identification critical at the moment problems in economy and development of additional measures for their elimination. Common problems for the countries from group 1.2 are situations in small business and on a labor market. In the countries from other groups, besides these problems, are inherent also more specific: problem of public finances (group 2.3), danger of growth of inflation and overheat (group 1.1 and 1.3), etc. The third direction - judgment of the reasons and results of crisis and development of measures and reforms which would allow to prevent similar crises in the future. Most of all such reforms it is developed in financial sector. Let's note also that in the academic literature the question of change of monetary policy (whether it should react to bubbles, and in what cases) is discussed, and also about need of introduction of mechanisms of insurance on a case of repetition of the crises similar to a crisis of confidence of 2008 as at modern complexity of the financial markets completely to prevent crises it will not be possible. In the majority of the countries anti-recessionary measures not always had until recently modernization character, is connected with depth of crisis and doesn't cancel need of transition to modernization measures. This task is especially actual for Kazakhstan, and high rates of regenerative growth create for this purpose objective possibility. Therefore in 2012 the reforms, allowing to start to solve the key problems which have appeared during crisis and reform, promoting modernizations of economy should become an important element of policy. As the main directions of similar policy, it is possible to offer the following: The financial sector appeared a weak link during crisis therefore actions on its strengthening are necessary. In particular, the following steps are possible:

1. By an example of other countries carrying out the analysis of weaknesses in system of regulation and introduction of corresponding changes, taking into account the last recommendations of FSB and BIS; 2. Also by an example of the leading countries development of approaches to regulation of prudential and system risks, including regulation and mechanisms of financial improvement or elimination of non-bank backbone finance companies. For Kazakhstan the problem of system risks isn't less important, than for other countries: today it is already clear that the excessive credit boom in precritical years created such risks. 3. Modernization of regulatory base for development of derivatives and urgent financial instruments that promotes decrease in volatility in the financial and currency markets. Crisis needs to be perceived, as possibility to create in Kazakhstan the modern financial market, having learned on another's mistakes. Therefore it is necessary not to forbid the tools operating in other countries, and in advance to consider another's mistakes at creation of own regulatory base. 4. Consolidation of the banking sector and market mechanisms of its stimulation. 6. Cancellation of excessive regulation of the current activity with a view of increase of global competitiveness of the Russian banking sector. The majority of the listed norms remained in Russia since the Soviet Monobank and have no relation to modern methods of regulation of operational risks. Moreover, they force banks to incur additional expenses, thereby undermining their competitiveness. Owing to the increased importance of questions of the analysis and an assessment of financial stability recently new approaches and methodological tools find the application for the purpose of more profound studying and identification of risks for banks. From the learning of financial crisis 2007 the bankers should be change their policy and mentality. Though the regulatory bodies are now more cautious about deregulation still the bankers have to change their practices. Otherwise this type of crisis may come again. Following pints should be noticed carefully: In short term future global bank has to restore their balance sheet. In order to do this banks need growth. But in the weak market growth is very hard to achieve. In earlier time M&A treated as the source of growth. But after the crisis most financial institutions lost the capacity of M&A finance. Moreover many believe buying weak organization is not a good decision indeed. It is also tough decision in a fragile recovery, debt payoff tendency of customer and uncertain regulatory changes. So global banks should take the market share by focusing on small business which has more saving tendency and less risky but profitable loan taking behavior. Global banks should build strong customer relationship by assessing their need and providing appropriate product and experience. To doing so they have to invest in data collection, aggregation and integration and use those to serve customer more prudently. The subprime mortgage crisis was arisen due to the regulatory weakness of the developed countries. The process held some floating agents and unrestricted,

careless bank officers who were not much aware during the loan giving time. So, this regulation about unit banking system ultimately brought the recent financial crisis. Banker should be more cautious and skilled prior to handle this type of complex securities. The recent crisis has pointed out the failure of International Monetary Fund. IMF is proven as an inefficient regulatory institution at the time of the crisis. Global leaders should be work together to form more efficient IMF that can help the global banking sector. Some small countries like Bangladesh showed moderate performance at the time of financial crisis. One of the major reasons is unpopularity of complex financial instruments. Though it is not the solution still financial institution should follow some sort of conservative approach as they have to establish the confidence of the customer. As the whole industry globally faces a great downturn, obviously some major crack exists in the system. Regulatory bodies are trying to find out those problems and brining changes accordingly. Still no one can say playing ground for global banks become safe again. Thats why bankers should be careful about the futur e foot step in this slippery track. There is no doubt that more coordination in regulatory policies would be required at the global level. Special care would have to be given to the capital and liquidity requirements for financial institutions. The global nature of the financial system makes this coordination imperative. The enhanced capital and liquidity requirements will be phased in along the next 5 years. Simply put, this should make the banks safer by providing a greater cushion to survive the mistakes and accidents from which they suffer. Also the phase in approach would avoid contractionary pressures on the economies. The financial institutions have enough time to adopt their balance sheets to these new requirements. There is no denying the fact that funding costs of banks would increase under these requirements. Banks with international operations would have to satisfy the requirements under various jurisdictions they operate in. One the first look higher capital requirements will have the following effects: make it harder for businesses and individuals to obtain loans raise the cost of loans lower the interest rates offered to depositors and other suppliers of funds reduce the market value of the common stock of existing banks. But knowing that banks are highly levered institutions, higher equity requirements will reduce the risk of banks and hence lower the returns demanded by the debt and equity investors. One can anticipate lower ROEs from the banks due to higher equity requirements. \It seems quite hypocritical on the part of governments that they make debt cheaper by preferential tax treatment and then try to regulate the same with higher capital and funding requirements.

It seems to be a good move by regulatory bodies to require banks to use long term funding sources and avoid short term wholesale funding (which will be replaced by equity). This move will bring in stability and avoid short term speculation. Short term debt will always remains cheaper than long term debt as it reduces uncertainty and provides investors a liquidity advantage that they are willing to pay a premium for. It was found that banks used off balance sheet structures (SIVs) to evade regulatory requirements. Enhanced regulatory burden and ever increasing competition may push the banks to a new shadow banking system. There is a possibility that, under the new system, innovation would tak e credit creation away from banking sector. In short, involvement of securitization cannot be fully eliminated. For effective oversight, information sharing between the regulatory bodies would have to be improved to avoid arbitrage. As emerging economies gain strength in the financial system, their involvement in regulatory coordination becomes inevitable. In order to come out of the crisis, there needs to be increase in consumer demand followed by increase in output. The decoupling of emerging economies from advanced economies seems improbable. In order to decouple BRIC nations would have to return to high growth with poor recovery in advanced economies. Strong export links still exist between emerging and advanced economies which makes the high growth possible only when demand for their exports grows in countries like the US and the EU. Rebalancing of current account balances between the countries is crucial for global economic recovery. But this seems difficult as various economies operate on different models. Savings in emerging economies still remain strong. This is due to the fact that insurance system in these countries is not well developed. Higher savings reduce the consumption in local economy. In order to grow, opportunities have to be found abroad by making the exports cheaper and sell them where demand exists. In advanced economies savings rates are low and hence these economies thrive on higher consumption. So,these crises have had severe impacts on labour markets, mainly through the capital allocation channel but also because financial crises are larger versions of usual economic downturns. Available empirical evidence suggests that labour market outcomes during financial crises are worse than in regular downturns, even after controlling for the size of the recession. In particular, studies of past crises show that when cost of financing goes up, job creation suffers. In terms of empirical evidence for misallocation, studies show that there is a relatively large drop in manufacturing and mining, which have high productivity, compared to services and agriculture, which tend to have low productivity. Furthermore, misallocation can persist in the medium term, especially if the problems in the financial system are not properly addressed. The recent crisis (2007-12) showed that both during financial crises and in

the recovery phase, unemployment is lower than what would usually be warranted by the observed drop in output. Furthermore, studies from past crises show that while in the normal business cycle, old jobs were kept in place, but in financial crises there was a large degree of job destruction without a commensurate increase in job creation. The large impact of financial crises on the labour market can generate structural adjustments, like increase in long-term unemployment. Since it is difficult to reintegrate these workers back into the labour force (skills erosion, labour market detachment, etc.), it could lead to hysteresis, that is, the tendency of large cyclical unemployment outcomes to translate into a permanent increase in the natural rate of unemployment. Not surprisingly, there is a vast literature on financial crisis and one story that emerges clearly is that financial crisis is a reasonably well-defined economic problem, and it is avoidable with the right set of policies. In order to understand a financial crisis, it is important to look at the boom period that usually precedes a crisis two main strands of the literature on crises that attempt to account for this period. The first view states that the boom-bust cycle is evidence of excessive investment and risk taking (facilitated by easy monetary policy). The second perspective presupposes that inflated prices in assets increases liquidity rather than excessive investment and facilitates investment. Whichever strand of the literature one subscribes to, what is clear is that boom periods are usually followed by bust. That is, bubbles tend to ultimately lead to bust when asset prices drop precipitously and financial markets are no longer functional. Financial markets become dysfunctional because of liquidity problems (when firms cancel good projects in the face of liquidity constraints) and the problem of contagion (financial institutions and markets are interconnected, hence become the carrier of the crisis). These problems suggest that government has a role to play in mitigating the fall from a bust. The primary role of financial markets is to direct resources to their most productive uses, and when this ability is compromised, productivity suffers and could have long-term impact. The most direct real effects of disruptions in financial markets are on capital (re)allocation during and aft er the crisis. Th e potential role of misallocation in delaying the recovery in Japan and Mexico in the 1990s underscores the need for authorities to intervene quickly and thoroughly in the banking system. Furthermore, Sweden in 1991-93 serves as an example of swift government intervention that held banks accountable while providing much needed government support. In order to prevent the potential problem of moral hazard that comes with bank bailouts, government should lend freely to only the solvent banks, but only do so against good collateral and high interest rate. If interest rates are high, banks are incentivized to repay the government as quickly as they can, withdraw from risky projects, and attract private capital. Effective government policies will revive the credit markets, restore confidence in the financial system, and enable the financial sector to perform its task of allocating scarce resources to their most productive usage.

In this respect, financial regulation can play an important role. Boom-bust cycles often follow periods of financial liberalization reforms. This is consistent with the excessive risk taking view of booms, as financial de-regulation reforms have typically facilitated risk taking. But returning to the previous regulatory frameworks is probably not advisable either, as the heavy intervention of the government in the allocation of credit was also distortionary. Regulatory reforms were successful in generating higher growth, and now the challenge is to retain these gains while recovering the stability that existed before the reforms. In light of the recent crisis, studies suggest that financial regulation should become macroprudential, that is, capital adequacy ratios should respond not only to the individual risk of securities held by banks, but by how they correlate with macroeconomic variables and, in particular, with how they behave during financial crises. Macro-prudential regulation should also be cyclical, tighter in the boom and weaker in the downturn. Even well designed financial regulations are constrained by a boundary. Any financial regulation has to specify which assets and institutions fall into its rules and which ones do not. This creates an incentive for funds to flow towards the unregulated institutions in the boom periods and back to the regulated ones in the crisis, potentially amplifying the cycle. Finding the balance thus in terms of excessive or inadequate financial regulation is challenge for policy makers.

CONCLUSION The research which has been carried out in this work, led to the following conclusions: 1. The current financial crisis, most likely, will become history not simply as the first global crisis, but also as the crisis which sharpest phase ended thanks to the coordinated policy of leading world powers. The state policy allowed many countries to stabilize quickly economy and even to return to almost critical rates of development. 2. The financial and economic crisis essentially changed nature of functioning of a world banking system. Till 2007-2011 one tool - a short-term rate of percent was used generally; one aim - stability of the prices was pursued. Was considered that the Central Banks should apply the percentage tools, and all other markets will automatically adapt to their policy. 3. In the conditions of crisis the concept of independence of the central banks is substantially revised. Before crisis carrying out an independent monetary policy (isolated from executive and legislature) was much simpler, as the main attention was reduced to control of interest rates. Now, when the central banks began to support problem (state and private) borrowers, the border between monetary and credit and fiscal policy becomes more and more dim. Certainly, hardly it is necessary to expect loss of an autonomy of the central banks (especially considering rather strong possibilities of banks on lobbying of idea of the independence), however closer cooperation between the national governments and the central banks is obvious. 4. As a whole the policy till 2011 can be characterized as policy of knocking over of the problems which have arisen during crisis. As well as in other countries in a significant amount of cases this policy ran counter to problems of modernization of economy that especially well it is visible on a policy example concerning employment and unemployment reduction. 5. The combination which has developed in crisis of various risk factors made essential destabilizing impact on economy of Kazakhstan and compelled the state to carry out intervention to economic and financial processes with a view of maintenance of financial stability. Negative tendencies in economy in crisis were defined by the whole complex both external, and internal risk factors. Decrease in the world prices for the main export articles and devaluation in the countries - the main trading partners of Kazakhstan. Deficiency of a funding of the banking sector. By the end of 2008 the international markets of the capital were actually closed for the Kazakhstan banks that were even more aggravated from the beginning of process of restructuring of two backbone banks. External debt. Need of service of an external debt the banking sector of the country in the absence of possibilities to refinance obligations in foreign markets led to essential decrease in a duty of the banking sector. Decrease in credit activity of banks. Deficiency of a funding of banks led to decrease in volumes of delivery of the new credits to economy that sharply

worsened the provision of such segments of real sector, as small and medium business, trade and rendering of services, construction branch. Besides, low volumes of retail crediting were also negatively reflected in internal demand. Deterioration of a credit portfolio of a banking system. 6. Kazakhstan went on the European way, trying to hold in every way employment and using for this purpose both administrative levers, and the organization of public works directly in a place of the main employment of employees. From the point of view of problems of modernization, it would be desirable to allow for the companies to get rid of excessive labor, to increase labor productivity and efficiency of the work. 7. For last period of time anti-recessionary measures could stabilize a world financial system and create conditions for renewal of economic growth. However, the short-term prospect of further development still remains uncertain, hiding for itself possible risks for a world financial system. Anti-recessionary measures of the states could stimulate a certain revival of economy; stabilize a financial position of financial institutions. However there is a risk of that without state resources it will be difficult to financial institutions to obtain in the market funds in case of policy end on support of the financial markets to a complete recovery of trust on them. 8. The public funds transferred to financial institutions for support of real sector, are put in the financial markets, creating thereby risk of their overheat and growth of scale of speculative operations. In view of danger of creation of new "bubbles" taking measures, directed on restriction of moving of the speculative capital is necessary. 9. Decrease in solvent demand minimizes threat of growth of inflation in the short-term period; however large-scale injections of public funds in economy and preservation of interest rates at a low level create threat of inflationary pressure in medium-term prospect. 10. The large-scale state help led to growth of deficiency of the state budget which creates preconditions for increase in sovereign debt burden and the related risks.

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Appendix 1 World GDP Growth rates and Core Inflation rate, y-o-y,%

Note: The World Bank Outlook

Appendix 2 Anti-crisis package goals and instruments

Note: The World Bank Outlook

Appendix 3 Main social-economic indicators in Kazakhstan

January-May 2012 May 2012 JanuaryMay 2012 to JanuaryMay 2011, % May 2012 to May 2011, % May 2012 to April 2012, %

Socio-demographic indicators Population (end of year), thsd. persons Natural increase (decrease) of population, thsd. persons Migration growth (loss), thsd. persons Number of the registered cases of tuberculosis of breath organs, persons Number of the detected carriers of a HIV infection, persons Number of crimes registered, thsd. cases Level of crime (the number of crimes per 10 000 population) Population living standards Nominal money income (estimation), average per capita, tenge Real money income (estimation), % Living wage amount, tenge Labour market and wages Number of unemployed, thsd persons (estimation) Number of registered unemployed thsd persons Unemployment rate, % (estimation) Share of the registered unemployed % Level of the latent unemployment, % (estimation) Average monthly nominal wage of one worker, tenge Real wage index, % Prices Consumer price index, % Producer price index, %

16 776,6 97,0 4,2

16 776,6 19,9 -0,3

101,5 108,7 80,8

101,5 111,8 -0,3

100,1 91,3 -42,9

5 247 907 113 066 162

1 052 210 24 941 -

94,0 111,3 178,0 174,2

89,5 118,0 150,8 -

84,2 107,1 107,0 -

48 859 106,7 16 119

115,1 109,6 -

112,0 106,7 101,1

100,9 100,2 100,2

95 712 -

473,6 70,5 5,3 0,8 0,3 98 942 -

117,2 111,7 105,0 108,5

101,5 106,5 117,6 112,0 105,0 101,3

99,7 103,5 101,4 100,7 100,7 98,4

Price index in agriculture, % Price index in construction, % Price index of wholesales, % Index of tariffs for transport services, % Indexes of tariffs for services of postal and courier for legal entities, % Indexes of tariffs for services of communication for legal entities, % Price index of export deliveries, % Price index of import receipts, % National economy Short-term economic indicator, % (calculated on real rate of growth in six branches agriculture, industry, construction, trade, transport, communications) Gross domestic product, billion tenge (January-March 2012) Investments into fixed capital, billion tenge Trade Retail trade turnover, billion tenge (excluding services of public catering) Foreign trade turnover, million USD Export of goods, million USD Import of goods, million USD Real sector of economy Industrial production volume (goods and services), billion tenge Volume of gross agricultural products, billion tenge Volume of construction works, billion tenge Cargo transportation by all types of transport, million tons Cargo turnover by all types of transport, billion tkm The volume of services postal and courier activities, billion tenge The volume of communication services, billion tenge

90,8 105,4 101,6 107,0

88,6 105,4 100,1 113,5

98,7 100,4 100,4 100,0

98,2

96,9

100,0

95,2 126,6 99,7

99,1 114,8 94,1

100,3 99,9 98,7

11 833,7

2 469,5

104,2

103,4

102,6

5 976,7 1 541,3

431,1

105,6 105,9

110,6

119,7

1 570,7 54 591,2 38 346,5 16 244,7

335,2 12 482,1 8 861,5 3 620,6 1 324,5

111,9 120,5 119,5 122,8 102,3

112,3 115,3 123,5 99,2

106,3 112,5 116,5 103,9

6 775,3 345,8 543,7 1 138,2 183,2 240,8 37,4 119,2 115,2 84,8 177,8 93,7 100,2

100,9 92,4 101,5 116,7 109,7

98,5 120,8 130,9 106,0 102,9

7,0 236,1

1,5 49,6

115,0 113,2

123,0 109,9

104,4 104,6

Entrepreneur confidence index for industry Entrepreneur confidence index for trade Consumer perception index Purchase intention index Financial system Monetary mass 3, billion tenge Cash in circulation, billion tenge Deposits in bank system, billion Deposits of the population, billion BSL credits of economy and population, billion tenge Long-term credit investments of BSL, billion tenge Profitability of enterprises and organizations (I quarter 2012), % Debts of enterprises and organizations, billion tenge (on April 1, 2012) Debts under obligations of enterprises and organizations, billion tenge (on April 1, 2012),

+12 +5 +19 +18

10 334,9 1 350,1 8 984,8 2 955,7 9 167,4 7 401,4

115,2 118,2 114,8 126,7 117,4 113,5

99,4 100,6 99,3 100,4 101,1 102,3

35,9

8 784,7

116,4

25 218,8

113,6

Note: The Agency of Statistics of the Republic of Kazakhstan