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Financial Regulation in Developing Countries

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  • M. Brownbridge
  • C. Kirkpatrick
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    Abstract

    Many LDCs have implemented reforms to strengthen the prudential regulation and supervision of their financial systems. This article examines the progress made by LDCs in implementing reforms, analyses the weaknesses in their prudential systems and discusses policy options for further reform. While considerable improvements have been achieved, the occurrence of banking crises during the 1990s indicates that many countries have yet to build robust prudential systems which can protect their banking systems from systemic crises. The weaknesses include loopholes in the prudential regulations, shortages of skilled supervisors, and regulatory forbearance. Furthermore, there are difficulties in applying the developed country model of regulation, which relies heavily on accurate financial information, highly skilled technicians and an impartial bureaucracy, in an environment characterised by weak accounting and legal frameworks, acute shortages of skilled personnel and pervasive political interference in public administration. Options for further reform include higher capital adequacy standards, explicit rules covering intervention policy in distressed banks, restraints on competition in banking markets and greater use of the market for monitoring banks.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/713600056
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

    Volume (Year): 37 (2000)
    Issue (Month): 1 ()
    Pages: 1-24

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    Handle: RePEc:taf:jdevst:v:37:y:2000:i:1:p:1-24

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    Web page: http://www.tandfonline.com/FJDS20

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    Related research

    Keywords: Developing countries; Financial regulation; Banking; Banking systems; Bank regulation; Capital adequacy; Basle Capital Accord; Policy options for reform;

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    Cited by:
    1. Kirkpatrick, Colin & Parker, David, 2003. "Regulatory Impact Assessment: Developing Its Potential for Use in Developing Countries," Centre on Regulation and Competition (CRC) Working papers 30646, University of Manchester, Institute for Development Policy and Management (IDPM).
    2. Ilene GRABEL, 2004. "Trip Wires And Speed Bumps: Managing Financial Risks And Reducing The Potential For Financial Crises In Developing Economies," G-24 Discussion Papers 33, United Nations Conference on Trade and Development.
    3. Ilene Grabel, 2003. "Predicting Financial Crisis in Developing Economies: Astronomy or Astrology?," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 243-258, Spring.
    4. Parker, David & Kirkpatrick, Colin, 2002. "Researching Economic Regulation in Developing Countries: Developing a Methodology for Critical Analysis," Centre on Regulation and Competition (CRC) Working papers 30665, University of Manchester, Institute for Development Policy and Management (IDPM).
    5. Kirkpatrick, Colin, 2001. "Regulatory Impact Assessment in Developing Countries: Research Issues," Centre on Regulation and Competition (CRC) Working papers 30640, University of Manchester, Institute for Development Policy and Management (IDPM).
    6. Elina Ribakova, 2005. "Liberalization, Prudential Supervision, and Capital Requirements: The Policy Trade-Offs," IMF Working Papers 05/136, International Monetary Fund.
    7. Clara Garcia, 2004. "Capital Inflows, Policy Responses, and Their Ill Consequences: Thailand, Malaysia, and Indonesia in the Decade Before the Crises," Working Papers wp81, Political Economy Research Institute, University of Massachusetts at Amherst.
    8. Tony Addison & Alemayehu Geda & Philippe Le Billon & S Mansoob Murshed, 2005. "Reconstructing and Reforming the Financial System in Conflict and 'Post-Conflict' Economies," Journal of Development Studies, Taylor & Francis Journals, vol. 41(4), pages 703-718.
    9. Jalilian, Hossein & Kirkpatrick, Colin & Parker, David, 2003. "Creating the Conditions for International Business Expansion: The Impact of Regulation on Economic Growth in Developing Countries - A Cross-Country Analysis," Centre on Regulation and Competition (CRC) Working papers 30689, University of Manchester, Institute for Development Policy and Management (IDPM).
    10. Thomas Barnebeck Andersen & Finn Tarp, 2003. "Financial liberalization, financial development and economic growth in LDCs," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 189-209.
    11. Colin Kirkpatrick & Christopher Green, 2002. "Finance and development: an overview of the issues," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(2), pages 207-209.
    12. Steinherr, Alfred & Cisotta, Alessandro & Klar, Erik & Sehovic, Kenan, 2006. "Liberalizing Cross-Border Capital Flows: How Effective Are Institutional Arrangements against Crisis in Southeast Asia," Working Papers on Regional Economic Integration 6, Asian Development Bank.

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