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Should Bank Supervisors in Developing Countries Exercise More or Less Forbearance?

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  • Patrick Honohan

Abstract

Although forbearance has been associated with more costly financial crises, a triggerhappy approach to closing weak banks could also precipitate an avoidable systemic collapse. In sophisticated regulatory environments, there can be net benefits from at least occasional acts of forbearance. But we argue that three key structural weaknesses in developing countries suggest that their regulators should have less forbearance discretion. This is because financial systems in developing countries tend to have worse information, less interdependence and greater agency problems.

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  • Patrick Honohan, 2007. "Should Bank Supervisors in Developing Countries Exercise More or Less Forbearance?," The Institute for International Integration Studies Discussion Paper Series iiisdp231, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp231 Note: Length:
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    1. Van Biesebroeck, Johannes, 2008. "The Sensitivity of Productivity Estimates," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 311-328.
    2. Johannes Sauer & Klaus Frohberg & Henrich Hockmann, 2006. "Stochastic efficiency measurement: The curse of theoretical consistency," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 139-166, May.
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