Financial liberalization and financial fragility
AbstractThe authors study the empirical relationship between banking crises and financial liberalization using a panel of data for 53 countries for 1980-95. They find that banking crises are more likely to occur in liberalized financial systems. But financial liberalization's impact on a fragile banking sector is weaker where the institutional environment is strong--especially where there is respect for the rule of law, a low level of corruption, and good contract enforcement. They examine evidence on the behavior of bank franchise values after liberalization. They also examine evidence on the relationship between financial liberalization, banking crises, financial development, and growth. the results support the view that, even in the presence of macroeconomic stabilization, financial liberalization should be approached cautiously in countries where institutions to ensure legal behavior, contract enforcement, and effective prudential regulation and supervision are not fully developed.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1917.
Date of creation: 31 May 1998
Date of revision:
Banks&Banking Reform; Financial Crisis Management&Restructuring; Insurance&Risk Mitigation; Payment Systems&Infrastructure; Insurance Law; Financial Economics; Financial Intermediation; Banks&Banking Reform; Financial Crisis Management&Restructuring; Insurance&Risk Mitigation;
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