Financial Policies and the Prevention of Financial Crises in Emerging Market Economies

The author defines a financial crisis as a disruption in financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities. As financial markets become unable to function efficiently, economic activity sharply contracts. Factors that promote financial crises include, mainly, a deterioration in financial sector balance sheets, increases in interest rates and in uncertainty, and deterioration in nonfinancial balance sheets because of changes in asset prices. Financial policies in 12 areas could help make financial crises less likely in emerging market economies, says the author. He discusses: Prudential supervision. Accounting and disclosure requirements. Legal and judicial systems. Market-based discipline. Entry of foreign banks. Capital controls. Reduction of the role of state-owned financial institutions. Restrictions on foreign-dominated debt. The elimination of too-big-to-fail practices in the corporate sector. The proper sequencing of financial liberalization. Monetary policy and price stability. Exchange rate regimes and foreign exchange reserves. If the political will to adopt sound policies in these areas grows in emerging market economies, their financial systems should become healthier, with substantial gains both from greater economic growth and smaller economic fluctuations.

Bibliographic Details

Main Author:	Mishkin, Frederic S.
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2001-10
Subjects:	ACCOUNTING, ADVERSE SELECTION, ASSET PRICES, ASYMMETRIC INFORMATION, BALANCE OF PAYMENTS, BALANCE SHEET, BALANCE SHEETS, BANK CAPITAL, BANK FAILURE, BANK HOLDING COMPANY, BANK PANICS, BANKING CRISES, BANKING PANICS, BANKING SECTOR, BANKING SYSTEM, BANKING SYSTEMS, BANKRUPTCY, BONDS, BORROWING, CAPITAL BASE, CAPITAL CONTROLS, CAPITAL INFLOWS, CAPITAL REQUIREMENTS, CENTRAL BANK, CERTIFICATES OF DEPOSIT, CHECKING, COMMERCIAL BANKS, CONTAGION, CREDIT MARKETS, CREDIT RATIONING, CREDIT RISK, CURRENCY CRISES, DEBT, DEFLATION, DEPOSITS, DEVALUATION, DISINFLATION, ECONOMIC ACTIVITY, ECONOMIC FLUCTUATIONS, ECONOMIC GROWTH, ECONOMIC RESEARCH, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EQUITY CAPITAL, EXCHANGE RATE, EXCHANGE RATE DEPRECIATION, EXCHANGE RATE REGIMES, EXCHANGE RATE RISK, EXCHANGE RATES, FACE VALUE, FEDERAL DEPOSIT INSURANCE, FEDERAL DEPOSIT INSURANCE CORPORATION, FEDERAL RESERVE BANK OF NEW YORK, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL INTERMEDIATION, FINANCIAL MARKETS, FINANCIAL POLICIES, FINANCIAL REFORM, FINANCIAL REGULATION, FINANCIAL SECTOR, FINANCIAL SECTOR BALANCE, FINANCIAL STABILITY, FINANCIAL STRUCTURE, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FISCAL DEFICITS, FISCAL POLICY, FOREIGN BANKS, FOREIGN CURRENCY, FOREIGN EXCHANGE, FREE RIDER, FUTURE VALUE, GDP, GOVERNMENT SECURITIES, GROWTH RATE, ILLIQUIDITY, INFLATION, INSTITUTIONAL STRUCTURE, INSURANCE, INTEREST RATE, INTEREST RATES, INTERNATIONAL RESERVES, INVESTMENT OPPORTUNITIES, LEGISLATION, MANDATES, MERCHANT BANKS, MONETARY POLICY, MORAL HAZARD, MORAL HAZARD PROBLEMS, MUTUAL FUNDS, NET ASSETS, NET WORTH, NOMINAL INTEREST RATES, NONBANK FINANCIAL INSTITUTIONS, NONPERFORMING LOANS, POLICY RESEARCH, PORTFOLIOS, PRESENT VALUE, PRICE STABILITY, PRIVATE SECTOR, PRIVATIZATION, REAL OUTPUT, REGULATORY FORBEARANCE, RISK TAKING, SAVINGS, SECURITIES, SECURITIES MARKETS, SHARP DETERIORATION, STATUTORY REQUIREMENTS, STOCK PRICES, STOCKHOLDERS, SUBSIDIARIES, THRIFT INSTITUTIONS,
Online Access:	http://documents.worldbank.org/curated/en/2001/10/1614834/financial-policies-prevention-financial-crises-emerging-market-economies http://hdl.handle.net/10986/19532
Tags:	Add Tag No Tags, Be the first to tag this record!