Inelasticity Of Emerging Economies To Financial Crisis

The global financial crisis is attributed to a large scale lending, to subprime borrowers by the small, medium and large private banks, a phenomenon observed in USA. The crisis spread to European countries and the rest of the world. Emerging countries were not totally engulfed by the financial crisis, however shocks were felt not because of the subprime borrowing defaults but were affected due to slump in inward foreign capital flows and fall in exports. Thanks to their well regulated financial system and large domestic market size that induced sustained demand in the market even in the face of global recession. The financial system has provided adequate liquidity generated from internal sources and sustained the economic growth. This paper explores the prudential policies that protected emerging markets from the severe impact of global recession through secondary research. The paper probes into some of the banking policy issues that helped India to thwart the effects of global recession and also evaluates the possible lessons that can be learnt and considered reliable for advance countries especially US. Enough literature is available on lessons to be learnt from the global recession and how emerging countries can avoid financial crisis. This paper looks into the other aspect that developed countries may also learn few lessons from emerging countries. In this respect the paper focuses on evaluating various banking practices adopted by emerging countries and remained resilient to the global crisis. The case of Indian conservative banking approach which enabled its financial market to manage the impact is a strong case to advocate this approach.