Financial Liberalization Causes Banking System Fragility

The sector having the most important role among developedness indicators is financial sector. The most important and vulnerable part of this sector is banking system. Financial liberalization and relaxation in political approach, based on strict norms, following it, and increasing competition at sectorial level required the presence of supervision mechanisms. The rigid rules of supervision system under consideration led profit margin to fall gradually. Hence, alternative searches became a current issue in terms of the other actors of banks and banking system. These alternative ways, developed and termed off-balance sheet activities despite the fall at profitability level, are shown as one of the main reasons for 2008 Global Crisis by some economists and draw attention to the concept of shadow banking. In USA, together with the synthesis of liberalization and financial engineering, “Shadow Banking” system formed as the main reason for 2008 Crisis and played role in its development. In this study, the effects of shadow banking on world banking are dealt with the theoretical meaning, and a set of economic policy are suggested in the light of the data obtained.

Download Full-text

The Effect of Corporate Transparency on Bank Risk-Taking and Banking System Fragility

SSRN Electronic Journal ◽

10.2139/ssrn.2138156 ◽

2012 ◽

Cited By ~ 3

Author(s):

Sudarshan Jayaraman ◽

S.P. Kothari

Keyword(s):

Risk Taking ◽

Banking System ◽

Bank Risk ◽

Corporate Transparency ◽

System Fragility

Download Full-text

Determinants of Banking System Fragility: A Case Study of Mexico

International Monetary Fund Staff Papers ◽

10.2307/3867561 ◽

1997 ◽

Vol 44 (3) ◽

pp. 295 ◽

Cited By ~ 57

Author(s):

Brenda Gonzalez-Hermosillo ◽

Ceyla Pazarbasioglu ◽

Robert Billings

Keyword(s):

Banking System ◽

System Fragility

Download Full-text

Financial Development, Financial Repression, And Growth In Developing Economies

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v11i1.6676 ◽

2011 ◽

Vol 11 (1) ◽

pp. 115

Author(s):

Lillian Kamal

Keyword(s):

Economic Growth ◽

Interest Rates ◽

Financial Development ◽

Financial Liberalization ◽

Developing Economies ◽

Banking System ◽

Financial Repression ◽

Overwhelming Evidence ◽

Geographical Regions ◽

The Relationship

Many studies have examined the relationship between economic growth and finance. A continuing question is the choice of a clear proxy for financial development. This paper attempts to elucidate this issue from a developing country perspective, while controlling for financial repression. The proxy of choice is the ratio of currency outside the banking system to real output (CB). This proxy is unique in that it is related to the degree of financial repression, and thus relates differently to economic growth depending on the level of financial development. The statistics support the hypothesis of a U-shaped behavior of CB with financial liberalization. The empirical results show that CB relates negatively to growth in countries that are less financially liberalized and positively with growth in countries that are more financially liberalized. The literature has used real interest rates as a measure of financial repression. An innovative measure of financial repression is then proposed that combines the use of currency inside banks and currency outside banks, and is tested concurrently with a broad money depth measure. The study is carried out using a panel approach, and the sample is also divided into different geographical regions, in order to see whether the relationship differs between geographical regions. The study concludes that there is overwhelming evidence that financial repression, which is indicative of financial under-development, is negatively related to growth.

Download Full-text