Beyond capital ideals : restoring banking stability
AbstractThe authors examine why emerging markets, in particular, are susceptible to and affected by financial difficulties. They show that these difficulties have a richer, more complex structure than they are sometimes believed to have - with marked information asymmetries and substantial volatility. The sources of heightened regulatory failure in emerging markets in recent years include the volatility of real and nominal shocks, the difficulty of operating in uncharted territory after financial liberalization and other changes in regime, and the political pressures that can inhibit the enforcement of prudential regulation. The authors discuss what stronger regulation can and cannot accomplish, as well as options to improve the incentive structure for bankers, regulators, and other market participants. They probe the shortcomings of a regulatory paradigm that relies mainly on supervised capital adequacy and discuss the possible intermittent application of supplementary"blunt instruments"as an interim solution while longer-term reforms are being put in place. Certain well-worn messages remain valid, but are respected more in theory than in practice. There would be fewer problems, the authors say, if there were: 1) more diversification; 2) more balanced financial structures (for example, as between debt and equity); 3) more foreign banks in emerging markets'financial systems; and 4) better enforcement of both contracts and regulations. Participants in the financial sector will constantly try to get around rules that limit their profitability, so regulation must be seen as an evolutionary struggle. Prevention of financial failure is not costless, and a heavy repressive hand is not warranted. But a richer regulatory palette can be used to protect financial systems more successfully against crisis while preserving the systems'growth-enhancing effectiveness.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2235.
Date of creation: 30 Nov 1999
Date of revision:
Environmental Economics&Policies; Payment Systems&Infrastructure; Financial Intermediation; Banks&Banking Reform; Financial Crisis Management&Restructuring; Economic Theory&Research; Banks&Banking Reform; Financial Intermediation; Financial Crisis Management&Restructuring; Environmental Economics&Policies;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kane, Edward J., 1995. "Three paradigms for the role of capitalization requirements in insured financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 431-459, June.
- Soledad, M.S. & Schmukler, S., 1999.
"Do Depositors Punish Banks for "Bad"Behavior?: Examining Market Discipline in Argentina, Chile, and Mexico,"
48, Cambridge - Risk, Information & Quantity Signals.
- María Soledad Martínez & Sergio Schmukler, 1999. "Do Depositors Punish Banks For "Bad" Behavior?: Examining Market Discipline In Argentina, Chile, And Mexico," Working Papers Central Bank of Chile 48, Central Bank of Chile.
- George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
- Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
- King, Robert G & Levine, Ross, 1993.
"Finance and Growth: Schumpeter Might Be Right,"
The Quarterly Journal of Economics,
MIT Press, vol. 108(3), pages 717-37, August.
- Enrica Detragiache & Asli DemirgÃ¼Ã§-Kunt, 1998.
"Financial Liberalization and Financial Fragility,"
IMF Working Papers
98/83, International Monetary Fund.
- Bhattacharya, S. & Boot, A.W.A. & Thakor, A.V., 1995.
"The Economics of Bank Regulation,"
9516, Centro de Estudios Monetarios Y Financieros-.
- Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
- Allen N. Berger & Sally M. Davies & Mark J. Flannery, 2000.
"Comparing market and supervisory assessments of bank performance: who knows what when?,"
Federal Reserve Bank of Cleveland, pages 641-670.
- Berger, Allen N & Davies, Sally M & Flannery, Mark J, 2000. "Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 641-67, August.
- Allen N. Berger & Sally M. Davies & Mark J. Flannery, 1998. "Comparing market and supervisory assessments of bank performance: who knows what when?," Finance and Economics Discussion Series 1998-32, Board of Governors of the Federal Reserve System (U.S.).
- anonymous, 1998. "Financial intermediation and growth," Economics Update, Federal Reserve Bank of Atlanta, issue Jan, pages 4.
- Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000.
"Financial intermediation and growth: Causality and causes,"
Journal of Monetary Economics,
Elsevier, vol. 46(1), pages 31-77, August.
- Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
- Thorsten Beck & Ross Levine & Norman Loayza, 1999. "Financial Intermediation and Growth: Causality and Causes," Working Papers Central Bank of Chile 56, Central Bank of Chile.
- Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
- Beck, T.H.L. & Levine, R. & Loayza, N., 2000. "Financial intermediation and growth: Causality and causes," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125519, Tilburg University.
- Martinez Peria, Maria Soledad & Schmukler, Sergio L., 1999. "Do depositors punish banks for"bad"behavior? : market discipline in Argentina, Chile, and Mexico," Policy Research Working Paper Series 2058, The World Bank.
- Claessens, S. & Djankov, S. & Lang, L.H.P., 1999. "East Asian Corporations. Heroes or Villains?," World Bank - Discussion Papers 409, World Bank.
- Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.
- Allen N. Berger & Richard J. Herring & Giorgio P. Szego, 1995.
"The role of capital in financial institutions,"
Finance and Economics Discussion Series
95-23, Board of Governors of the Federal Reserve System (U.S.).
- Andrei Shleifer & Robert W. Vishny, 1991. "Asset Sales and Debt Capacity," NBER Working Papers 3618, National Bureau of Economic Research, Inc.
- Ricardo Hausmann & Michael Gavin, 1996.
"Securing Stability and Growth in a Shock Prone Region: The Policy Challenge for Latin America,"
Research Department Publications
4020, Inter-American Development Bank, Research Department.
- Ricardo Hausmann & Michael Gavin, 1996. "Securing Stability and Growth in a Shock Prone Region: The Policy Challenge for Latin America," IDB Publications 5919, Inter-American Development Bank.
- Caprio Jr., Gerard, 1997. "Safe and sound banking in developing countries : we're not in Kansas anymore," Policy Research Working Paper Series 1739, The World Bank.
- Sebastian Edwards, 1998. "Capital Inflows into Latin America: A Stop-Go Story?," NBER Working Papers 6441, National Bureau of Economic Research, Inc.
- Robert DeYoung & Mark J. Flannery & William W. Lang & Sorin M. Sorescu, 1998. "The informational advantage of specialized monitors: the case of bank examiners," Working Paper Series WP-98-4, Federal Reserve Bank of Chicago.
- Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
- Nabi, Mahmoud Sami & Ben Aissa, Safouane & Drine, Imed, 2008.
"Ouverture financière et rattrapage technologique : Evidence empirique à partir du bassin méditerranéen
[Financial Openness and Technological Catch-up: Empirical Evidence from the Mediterranean ," MPRA Paper 20637, University Library of Munich, Germany, revised Jul 2009.
- Kenneth Rogoff, 1999.
"International Institutions for Reducing Global Financial Instability,"
NBER Working Papers
7265, National Bureau of Economic Research, Inc.
- Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
- Elina Ribakova, 2005. "Liberalization, Prudential Supervision, and Capital Requirements," IMF Working Papers 05/136, International Monetary Fund.
- Caprio, Gerard Jr. & Honohan, Patrick, 2002. "Banking policy and macroeconomic stability - an exploration," Policy Research Working Paper Series 2856, The World Bank.
- Elisabetta Montanaro, 2013. "Regole di Basilea e modelli di vigilanza: quale convergenza? (Basel rules and supervisory models: What convergence?)," Moneta e Credito, Economia civile, vol. 66(264), pages 415-442.
- Daoud Barkat Daoud, 2003. "Quelle réglementation du capital bancaire pour les pays en développement ?," Revue d'Économie Financière, Programme National Persée, vol. 73(4), pages 311-323.
- Marco Del Negro & Stephen Kay, 2002. "Global banks, local crises: bad news from Argentina," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 89-106.
- Islam, Roumeen, 2000. "Should capital flows be regulated? - a look at the issues and policies," Policy Research Working Paper Series 2293, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.