Liberalization, Prudential Supervision, and Capital Requirements: The Policy Trade-Offs

July 1, 2005

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Format: Chicago

Elina Ribakova. Liberalization, Prudential Supervision, and Capital Requirements: The Policy Trade-Offs, (USA: International Monetary Fund, 2005) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

While deregulated financial markets and strong competition are commonly viewed as prerequisites for successful economic development, recent empirical evidence suggests that financial liberalization, if not well phased, can lead to costly financial crises. This paper focuses on the roles of minimum capital requirements and prudential supervision in promoting financial stability during financial liberalization. The paper extends the Hellmann, Murdock, and Stiglitz model to analyze the effects of prudential supervision and demonstrates the trade-off between the quality of supervision and the level of minimum capital requirements. Where prudential supervision is poor, higher capital requirements are optimal.

Subject: Banking, Capital adequacy requirements, Competition, Deposit rates, Financial crises

Keywords: Bank, Deposit rate, Gambling bank, WP

Publication Details

Pages:

14
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/136
Stock No:

WPIEA2005136
ISBN:

9781451861556
ISSN:

1018-5941

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