IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1917.html
   My bibliography  Save this paper

Financial liberalization and financial fragility

Author

Listed:
  • Demirguc-Kent, Asli
  • Detragiache, Enrica

Abstract

The authors study the empirical relationship between banking crises and financial liberalization using a panel of data for 53 countries for 1980-95. They find that banking crises are more likely to occur in liberalized financial systems. But financial liberalization's impact on a fragile banking sector is weaker where the institutional environment is strong--especially where there is respect for the rule of law, a low level of corruption, and good contract enforcement. They examine evidence on the behavior of bank franchise values after liberalization. They also examine evidence on the relationship between financial liberalization, banking crises, financial development, and growth. the results support the view that, even in the presence of macroeconomic stabilization, financial liberalization should be approached cautiously in countries where institutions to ensure legal behavior, contract enforcement, and effective prudential regulation and supervision are not fully developed.

Suggested Citation

  • Demirguc-Kent, Asli & Detragiache, Enrica, 1998. "Financial liberalization and financial fragility," Policy Research Working Paper Series 1917, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1917
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1998/05/01/000009265_3980630181025/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    2. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    3. Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May.
    4. Mr. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises: Pitfalls in Financial Liberalization?," IMF Working Papers 1995/061, International Monetary Fund.
    5. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    6. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    7. Caprio, Gerard Jr. & Summers, Lawrence H., 1993. "Finance and its reform : beyond laissez-faire," Policy Research Working Paper Series 1171, The World Bank.
    8. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-152, May.
    9. V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Roubini, Nouriel & Sala-i-Martin, Xavier, 1992. "Financial repression and economic growth," Journal of Development Economics, Elsevier, vol. 39(1), pages 5-30, July.
    11. Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-761, July.
    12. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
    13. Calvo, Guillermo A, 1996. "Capital Flows and Macroeconomic Management: Tequila Lessons," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 207-223, July.
    14. S. Rao Aiyagari, 1988. "Banking panics, information, and rational expectations equilibrium," Working Papers 320, Federal Reserve Bank of Minneapolis.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Staff Working Papers 02-12, Bank of Canada.
    2. Massimo Sbracia & Andrea Zaghini, 2003. "The Role of the Banking System in the International Transmission of Shocks," The World Economy, Wiley Blackwell, vol. 26(5), pages 727-754, May.
    3. Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
    4. Huberto M. Ennis & Todd Keister, 2009. "Bank Runs and Institutions: The Perils of Intervention," American Economic Review, American Economic Association, vol. 99(4), pages 1588-1607, September.
    5. Ms. Enrica Detragiache & Asli Demirgüç-Kunt, 1997. "The Determinants of Banking Crises: Evidence From Developing and Developed Countries," IMF Working Papers 1997/106, International Monetary Fund.
    6. Germana Corrado, 2005. "Liquidity Shocks, Banking System Failures, and Supranational Lending of Last Resort Facilities," Annals of Economics and Finance, Society for AEF, vol. 6(1), pages 1-24, May.
    7. Sylviane Guillaumont Jeanneney & Kangni Kpodar, 2006. "Développement financier, instabilité financière et croissance économique," Economie & Prévision, La Documentation Française, vol. 0(3), pages 87-111.
    8. Pablo Gluzmann & Martín Guzman, 2011. "Financial Reforms and Financial Instability," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(61-62), pages 35-73, January -.
    9. Sylviane GUILLAUMONT JEANNENEY & Kangni KPODAR, 2004. "Développement financier, instabilité financière, croissance et pauvreté," Macroeconomics 0407003, University Library of Munich, Germany.
    10. della Paolera, Gerardo & Taylor, Alan M., 2002. "Internal versus external convertibility and emerging-market crises: lessons from Argentine history," Explorations in Economic History, Elsevier, vol. 39(4), pages 357-389, October.
    11. Asli Demirgüç-Kunt & Enrica Detragiache, 2005. "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192(1), pages 68-83, April.
    12. Demirguc-Kunt, Asli & Detragiache, Enrica, 1997. "The determinants of banking crises : evidence from industrial and developing countries," Policy Research Working Paper Series 1828, The World Bank.
    13. Martha A. Starr & Rasim Yilmaz, 2006. "Bank Runs in Emerging-Market Economies: Evidence from Turkey’s Special Finance Houses," Working Papers 2006-08, American University, Department of Economics.
    14. Gerardo della Paolera & Alan M. Taylor, 1999. "Internal Versus External Convertibility and Developing-Country FinancialCrises: Lessons from the Argentine Bank Bailout of the 1930's," NBER Working Papers 7386, National Bureau of Economic Research, Inc.
    15. Pavel Trunin & M. Kamenskih, 2007. "Monitoring Financial Stability In Developing Economies (Case of Russia)," Research Paper Series, Gaidar Institute for Economic Policy, issue 111.
    16. Beck, T.H.L., 2011. "The Role of Finance in Economic Development : Benefits, Risks, and Politics," Discussion Paper 2011-141, Tilburg University, Center for Economic Research.
    17. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    18. Giannetti, Mariassunta, 2003. "Bank-Firm Relationships and Contagious Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 239-261, April.
    19. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    20. Gerardo della Paolera & Alan M. Taylor, 2000. "Internal Versus External Convertibility and Developing-Country Financial," Macroeconomics 0004002, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1917. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.