Recent financial crises highlight weaknesses in financial markets and the need for regulatory and supervisory bodies (RSB) to improve the stability of financial markets. Currently, international institutions like the IMF and the World Bank place the independent RSB among their principle policy recommendations to developing countries. This paper acknowledges the importance of independent RSB for the proper functioning of financial markets. However, this paper also points out the preconditions to establish independent RSB. Unless certain prerequisites are satisfied, policy recommendations to construct an independent RSB are doomed to fail. The recent Turkish experience is provided as a case study to elucidate this conclusion. This paper first presents the arguments for independent RSB and the policy recommendations in institution building for stronger financial system. Then, the background of Turkish experience for independent RSB is provided. Finally, we analyze the primary reasons for the deficient performance of Turkish RSB over the last five years in an attempt to provide actual lessons for the future institutional reforms.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
5481.
Length: Date of creation: Jan 2006 Date of revision: Publication status: Published in International Journal of Applied Business and Economic Research 2.4(2006): pp. 125-146 Handle: RePEc:pra:mprapa:5481
Find related papers by JEL classification: O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
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