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Financial liberalization and financial fragility, Volume 1
 
Author:Demirguc-Kent, Asli; Detragiache, Enrica; Collection Title:Policy, Research working paper ; no. WPS 1917
Date Stored:1998/05/01Document Date:1998/05/31
Document Type:Policy Research Working PaperSubTopics:Financial Crisis Management & Restructuring; Payment Systems & Infrastructure; Banks & Banking Reform; Insurance & Risk Mitigation; Insurance Law; Financial Economics; Financial Intermediation
Language:EnglishMajor Sector:Finance
Report Number:WPS1917Sub Sectors:Other Finance
Volume No:1  

Summary: 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.

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