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Banks, Financial Liberalisation and Financial Crises in Emerging Markets

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  • Graham Bird
  • Ramkishen S. Rajan

Abstract

The East Asian financial crisis has raised a series of important issues. Amongst them is the question of the role of the banking sector and financial liberalisation in contributing to financial crises. How do weaknesses in the domestic banking sector, when combined with both domestic and international financial liberalisation, engender currency crises? What is lacking in the literature is a simple conceptual framework within which these connections can be conceptualised and drawn out and in which the role of banks is explicitly discussed. This paper seeks to provide just such a framework. Within it, international financial liberalisation can be seen as fuelling a boom in domestic credit, which leads to acute balance sheet problems for domestic banks, and exposes the country concerned to a currency crisis in the event of a sudden reversal of capital inflows, which banking weaknesses may itself trigger. Copyright Blackwell Publishers Ltd 2001.

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  • Graham Bird & Ramkishen S. Rajan, 2001. "Banks, Financial Liberalisation and Financial Crises in Emerging Markets," The World Economy, Wiley Blackwell, vol. 24(7), pages 889-910, July.
  • Handle: RePEc:bla:worlde:v:24:y:2001:i:7:p:889-910
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    References listed on IDEAS

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    Cited by:

    1. Ramkishen S. Rajan, 2007. "Managing new-style currency crises: the swan diagram approach revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(5), pages 583-606.
    2. Tony Cavoli & Ramkishen S. Rajan, 2005. "The Capital Inflows Problem in Selected Asian Economies in the 1990s Revisited: The Role of Monetary Sterilization," SCAPE Policy Research Working Paper Series 0518, National University of Singapore, Department of Economics, SCAPE.
    3. Oberdabernig, Doris A., 2013. "Revisiting the Effects of IMF Programs on Poverty and Inequality," World Development, Elsevier, vol. 46(C), pages 113-142.
    4. Michael Frenkel & Lukas Menkhoff, 2004. "Are Foreign Institutional Investors Good for Emerging Markets?," The World Economy, Wiley Blackwell, vol. 27(8), pages 1275-1293, August.
    5. Ma, Xufei & Yiu, Daphne W. & Zhou, Nan, 2014. "Facing global economic crisis: Foreign sales, ownership groups, and corporate value," Journal of World Business, Elsevier, vol. 49(1), pages 87-100.
    6. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 978-995, December.
    7. Ramkishen S. Rajan & Reza Y. Siregar & Tony Cavoli, 2006. "Financial Integration in East Asia: How Far? How Much Further to Go?," Working Papers id:372, eSocialSciences.
    8. Ramkishen S. Rajan & Reza Siregar & Iman Sugema, 2003. "Why was there a precrisis capital inflow boom in Southeast Asia?," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(3), pages 265-283.
    9. Saoussen Ben Gamra & Dominique Plihon, 2007. "Qualité Des Institutions, Libéralisation Et Crises Bancaires Le Cas Des Pays Émergents," CEPN Working Papers hal-00574136, HAL.
    10. Bayraktar, Nihal & Yan Wang, 2004. "Foreign bank entry, performance of domestic banks, and sequence of financial liberalization," Policy Research Working Paper Series 3416, The World Bank.
    11. Zou, Liping & Tang, Tiantian & Li, Xiaoming, 2016. "The stock preferences of domestic versus foreign investors: Evidence from Qualified Foreign Institutional Investors (QFIIs) in China," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 12-28.
    12. Graham Bird & Ramkishen Rajan, 2002. "The Evolving Asian Financial Architecture," Centre for International Economic Studies Working Papers 2002-03, University of Adelaide, Centre for International Economic Studies.
    13. Alam, Shaista & Ahmed, Qazi Masood, 2012. "Exchange Rate Volatility and Aggregate Exports Demand through ARDL Framework: An Experience from Pakistan Economy," Review of Applied Economics, Review of Applied Economics, vol. 8(1).
    14. Bird, Graham & Mandilaras, Alex, 2006. "Regional heterogeneity in the relationship between fiscal imbalances and foreign exchange market pressure," World Development, Elsevier, vol. 34(7), pages 1171-1181, July.

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