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Banking and Regulation in Emerging Markets: The Role of External Discipline

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  • Xavier Vives

Abstract

This article reviews the main issues of regulating and supervising banks in emerging markets with a view toward evaluating the long-run options. Particular attention is paid to Latin America and East Asia. These economies face a severe policy commitment problem that leads to excessive bailouts and potential devaluation of claims of foreign investors. This exacerbates moral hazard and makes a case for importing external discipline (for example, acquiring foreign short-term debt). However, external discipline may come at the cost of excessive liquidation of entrepreneurial projects. The article reviews the tradeoffs imposed by external discipline and examines various proposed arrangements, such as narrow banking, foreign banks and foreign regulation, and the potential role for an international agency or international lender of last resort. Copyright 2006, Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Research Observer.

Volume (Year): 21 (2006)
Issue (Month): 2 ()
Pages: 179-206

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Handle: RePEc:oup:wbrobs:v:21:y:2006:i:2:p:179-206

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References

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Citations

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Cited by:
  1. Xavier Vives, 2010. "Competition and Stability in Banking," Working Papers Central Bank of Chile 576, Central Bank of Chile.
  2. Shen, Chung-Hua & Huang, Yu-Li & Hasan, Iftekhar, 2012. "Asymmetric benchmarking in bank credit rating," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 171-193.
  3. Lin, Fengyi & Wu, Sheng-Fu, 2014. "Comparison of cosmetic earnings management for the developed markets and emerging markets: Some empirical evidence from the United States and Taiwan," Economic Modelling, Elsevier, vol. 36(C), pages 466-473.
  4. Luciano Fanti, 2012. "The dynamics of a banking duopoly with capital regulations," Discussion Papers 2012/151, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  5. Mohammad Joarder & Monir Ahmed & Tahsina Haque & Syed Hasanuzzaman, 2014. "An empirical testing of informational efficiency in Bangladesh capital market," Economic Change and Restructuring, Springer, vol. 47(1), pages 63-87, February.
  6. Fanti, Luciano, 2014. "The dynamics of a banking duopoly with capital regulations," Economic Modelling, Elsevier, vol. 37(C), pages 340-349.

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