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Safe and sound banking in developing countries : we're not in Kansas anymore

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  • Caprio Jr., Gerard

Abstract

Drawing on earlier work, the author reviews some of the salient facts about the boom in banking busts in developing countries. He then reviews policy responses taken by authorities in some of the"early"crisis countries, and considers a wider menu of responses -in particular the currently popular suggestion that promulgating an International Banking Standard would significantly improve the safety and soundness of banking systems in developing countries. Such a standard is not without appeal, but other approaches are probably necessary in developing countries where risks are usually greater, financial institutions are less diversified, markets are less transparent, supervision is weak, and other ingredients critical to sound banking are either missing or scarcer than in industrial countries. The author calls for a multi-pillar approach to safe and sound banking, one that would: (1) focus attention on factors that restrict banks'ability and willingness to diversify risk; and (2) Give three key groups -owners (and managers), the market (including uninsured debtholders and other possible co-owners), and supervisors- more incentive and ability to monitor banks and ensure their prudent corporate governance.

Suggested Citation

  • Caprio Jr., Gerard, 1997. "Safe and sound banking in developing countries : we're not in Kansas anymore," Policy Research Working Paper Series 1739, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1739
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    References listed on IDEAS

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    1. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
    2. Gerald Caprio & Michael Dooley & Danny Leipziger & Carl Walsh, 1996. "The lender of last resort function under a currency board: The case of Argentina," Open Economies Review, Springer, vol. 7(1), pages 625-650, March.
    3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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    Cited by:

    1. repec:onb:oenbwp:y::i:48:b:1 is not listed on IDEAS
    2. D.T. Llewellyn, 2000. "Some Lessons for Bank Regulation from Recent Crises," DNB Staff Reports (discontinued) 51, Netherlands Central Bank.
    3. Llanto, Gilberto M. & Intal, Ponciano Jr. S., 1998. "Financial Reform and Development in the Philippines, 1980-1997: Imperatives, Performance and Challenges," Philippine Journal of Development JPD 1998 Vol. XXV No. 1-a, Philippine Institute for Development Studies.
    4. David T. Llewellyn, 2002. "An analysis of the causes of recent banking crises," The European Journal of Finance, Taylor & Francis Journals, vol. 8(2), pages 152-175, June.
    5. Kirkpatrick, Colin, 2001. "Regulatory Impact Assessment in Developing Countries: Research Issues," Centre on Regulation and Competition (CRC) Working papers 30640, University of Manchester, Institute for Development Policy and Management (IDPM).
    6. Gerard Caprio, 2011. "Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?," Chapters,in: Handbook of Central Banking, Financial Regulation and Supervision, chapter 14 Edward Elgar Publishing.
    7. Fofack, Hippolyte L., 2005. "Nonperforming loans in Sub-Saharan Africa : causal analysis and macroeconomic implications," Policy Research Working Paper Series 3769, The World Bank.
    8. J. Caprio & P. Honohan, 2000. "Restoring Banking Stability: Beyond Supervised Capital Requirements," South African Journal of Economics, Economic Society of South Africa, vol. 68(1), pages 5-22, March.
    9. David T. Llewellyn, 2001. "A regulatory regime for financial stability," Working Papers 48, Oesterreichische Nationalbank (Austrian Central Bank).
    10. Benink, Harald A. & Schmidt, Reinhard H., 2004. "Europe's single market for financial services: views by the European Shadow Financial Regulatory Committee," Journal of Financial Stability, Elsevier, vol. 1(2), pages 157-198, December.
    11. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
    12. Caprio, Gerard, Jr. & Honohan, Patrick, 1999. "Beyond capital ideals : restoring banking stability," Policy Research Working Paper Series 2235, The World Bank.
    13. Caprio Jr., Gerard, 1998. "Banking on crises : expensive lessons from recent financial crises," Policy Research Working Paper Series 1979, The World Bank.

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