Financial liberalization, market discipline and bank risk
AbstractIn the literature on systemic banking crises, two common themes are: (1) Risky lending often follows bank liberalization. (2) Lack of market discipline encourages risky lending. That not all liberalizations are followed by financial crisis and that financial systems without market discipline sometimes operate without incident invites examination of these themes. In a test of six countries, we find that our measure of bank risk increases significantly in the wake of financial liberalizations, but only where depositors fail to discipline banks. Our measures of market discipline and bank risk, however, are persistently inversely related
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Center for Latin America Working Papers with number 0303.
Date of creation: 2003
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-09 (All new papers)
- NEP-FIN-2003-11-09 (Finance)
- NEP-IFN-2003-11-09 (International Finance)
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