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Regulatory Lessons from the Crisis of Costa Rica’s Mutual Fund Industry


  • Ana Carvajal


In 2004, the mutual fund industry of Costa Rica experienced a massive run by investors that reduced the industry to half its size in a month. This paper explores how weaknesses in the regulatory framework played a role in the crisis and draws lessons for developing countries. The analysis of events demonstrates the need for developing countries to design a multi-pillar framework for securities regulation as well as to strengthen financial literacy and capacity building. At the micro level it shows the importance of market conduct rules and the challenges that the implementation of mark-to-market poses for developing markets.

Suggested Citation

  • Ana Carvajal, 2006. "Regulatory Lessons from the Crisis of Costa Rica’s Mutual Fund Industry," IMF Working Papers 06/288, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/288

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    References listed on IDEAS

    1. Randall S. Kroszner & Philip E. Strahan, 2000. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," NBER Working Papers 7582, National Bureau of Economic Research, Inc.
    2. John A. Weinberg, 2002. "Competition among bank regulators," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 19-36.
    3. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1089-1127.
    4. Robert Marquez & Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 01/73, International Monetary Fund.
    5. Paul J. Siegelbaum & Khaled Sherif & Michael Borish & George Clarke, 2002. "Structural Adjustment in the Transition : Case Studies from Albania, Azerbaijan, Kyrgyz Republic, and Moldova," World Bank Publications, The World Bank, number 14052, June.
    6. Rosen, Richard J, 2003. " Is Three a Crowd? Competition among Regulators in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 967-998, December.
    7. Marc G Quintyn & Michael W Taylor, 2004. "Should Financial Sector Regulators Be Independent?," IMF Economic Issues 32, International Monetary Fund.
    8. Hans-Werner Sinn, 2002. "Risktaking, Limited Liability, and the Competition of Bank Regulators," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(3), pages 305-305, August.
    9. Abrams, Burton A & Settle, Russell F, 1993. "Pressure-Group Influence and Institutional Change: Branch-Banking Legislation during the Great Depression," Public Choice, Springer, vol. 77(4), pages 687-705, December.
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