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When does financial sector (in)stability induce financial reforms?

Author

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  • Susie Lee

    (Lehrstuhl fur Kommunal - und Umweltokonomie - Trier University)

  • Ingmar Schumacher

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique, Banque Centrale du Luxembourg)

Abstract

The article studies whether financial sector (in)stability had an effect on reforms in the financial sector in a large cross-country panel from 1990 to 2005. We forward the theory that countries are more likely to liberalize their financial sectors in times of financial stability. We argue that politicians are less likely to undertake financial reforms if they face a strong lobby in the financial sector which is able to block reforms that are not in its interest. Our empirical results suggest that financial instability leads to regulations, while financial stability is found to induce liberalizations. We also find that weaker financial lobbies are unable to block financial reforms while strong lobbies can effectively stop reforms.

Suggested Citation

  • Susie Lee & Ingmar Schumacher, 2011. "When does financial sector (in)stability induce financial reforms?," Working Papers hal-00637954, HAL.
    • Handle: RePEc:hal:wpaper:hal-00637954
    Note: View the original document on HAL open archive server: https://hal.science/hal-00637954
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    3. repec:ipg:wpaper:15 is not listed on IDEAS

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    Keywords

    Financial reforms; interest group theory; financial stability; financial crises;
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