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Assessing the Preconditions in Establishing an Independent Regulatory and Supervisory Agency in Globalized Financial Markets: The Case of Turkey

  • Aysan, Ahmet Faruk
  • Al, Huseyin

Recent financial crises highlight weaknesses in financial markets and the need for regulatory and supervisory bodies (RSB) to improve the stability of financial markets. Currently, international institutions like the IMF and the World Bank place the independent RSB among their principle policy recommendations to developing countries. This paper acknowledges the importance of independent RSB for the proper functioning of financial markets. However, this paper also points out the preconditions to establish independent RSB. Unless certain prerequisites are satisfied, policy recommendations to construct an independent RSB are doomed to fail. The recent Turkish experience is provided as a case study to elucidate this conclusion. This paper first presents the arguments for independent RSB and the policy recommendations in institution building for stronger financial system. Then, the background of Turkish experience for independent RSB is provided. Finally, we analyze the primary reasons for the deficient performance of Turkish RSB over the last five years in an attempt to provide actual lessons for the future institutional reforms.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5481.

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Date of creation: Jan 2006
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Publication status: Published in International Journal of Applied Business and Economic Research 2.4(2006): pp. 125-146
Handle: RePEc:pra:mprapa:5481
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  1. Marco Rossi, 1999. "Financial Fragility and Economic Performance in Developing Economies; Do Capital Controls, Prudential Regulation and Supervision Matter?," IMF Working Papers 99/66, International Monetary Fund.
  2. Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
  3. Richard K. Abrams & Michael Taylor, 2000. "Issues in the Unification of Financial Sector Supervision," IMF Working Papers 00/213, International Monetary Fund.
  4. Udaibir S. Das & Marc Quintyn, 2002. "Crisis Prevention and Crisis Management; The Role of Regulatory Governance," IMF Working Papers 02/163, International Monetary Fund.
  5. International Monetary Fund, 1998. "Turkey; Recent Economic Developments and Selected Issues," IMF Staff Country Reports 98/104, International Monetary Fund.
  6. Allan Drazen & William Easterly, 2001. "Do Crises Induce Reform? Simple Empirical Tests of Conventional Wisdom," Economics and Politics, Wiley Blackwell, vol. 13(2), pages 129-157, 07.
  7. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
  8. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
  9. C. Emre Alper & Ziya Onis, 2001. "Financial Globalization, the Democratic Deficit and Recurrent Crises in Emerging Markets: the Turkish Experience in the Aftermath of Capital Account Liberalization," Working Papers 2001/14, Bogazici University, Department of Economics.
  10. C. Emre Alper & Ziya Onis, 2002. "Emerging Market Crises and the IMF: Rethinking the Role of the IMF in the Light of Turkey's 2000-2001 Financial Crises," Working Papers 2002/03, Bogazici University, Department of Economics.
  11. Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
  12. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  13. C. Emre Alper, 2001. "The Turkish Liquidity Crisis of 2000: What Went Wrong..," Working Papers 2001/11, Bogazici University, Department of Economics.
  14. Michael Taylor & Marc Quintyn, 2002. "Regulatory and Supervisory Independence and Financial Stability," IMF Working Papers 02/46, International Monetary Fund.
  15. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," World Bank Economic Review, World Bank Group, vol. 14(3), pages 597-605, September.
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