Drawing on earlier work, the author reviews some of the salient facts about the boom in banking busts in developing countries. He then reviews policy responses taken by authorities in some of the"early"crisis countries, and considers a wider menu of responses -in particular the currently popular suggestion that promulgating an International Banking Standard would significantly improve the safety and soundness of banking systems in developing countries. Such a standard is not without appeal, but other approaches are probably necessary in developing countries where risks are usually greater, financial institutions are less diversified, markets are less transparent, supervision is weak, and other ingredients critical to sound banking are either missing or scarcer than in industrial countries. The author calls for a multi-pillar approach to safe and sound banking, one that would: (1) focus attention on factors that restrict banks'ability and willingness to diversify risk; and (2) Give three key groups -owners (and managers), the market (including uninsured debtholders and other possible co-owners), and supervisors- more incentive and ability to monitor banks and ensure their prudent corporate governance.
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Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996.
"Law and Finance,"
NBER Working Papers
5661, National Bureau of Economic Research, Inc.
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Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998.
"Law and Finance,"
Journal of Political Economy,
University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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