Banking and Regulation in Emerging Markets : The Role of External Discipline

This article reviews the main issues of regulating and supervising banks in emerging markets with a view toward evaluating the long-run options. Particular attention is paid to Latin America and East Asia. These economies face a severe policy commi...

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Bibliographic Details
Main Author:	Vives, Xavier
Format:	Journal Article
Language:	English en_US
Published:	Oxford University Press on behalf of the World Bank 2013
Subjects:	ACCOUNTING ACCOUNTING STANDARDS AGENCY PROBLEM AGENCY PROBLEMS AMOUNT OF COLLATERAL ASSET RATIO ASYMMETRIC INFORMATION AUCTION BAILOUT BAILOUTS BALANCE SHEETS BANK ACCOUNTS BANK ASSETS BANK LOANS BANK REGULATION BANKING CRISES BANKING CRISIS BANKING INSTITUTIONS BANKING REGULATION BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BONDHOLDERS BORROWER BORROWING CAPACITY BUSINESS CYCLES CAPITAL FLOWS CAPITAL MOVEMENTS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CENTRAL BANK CENTRAL BANK INDEPENDENCE CENTRAL BANKS CERTIFICATES OF DEPOSIT COLLATERAL COMMERCIAL BANK CONSUMER CREDIT CONTRACT ENFORCEMENT CONTRACTUAL RELATIONSHIP COORDINATION FAILURE CREDIT INSTITUTIONS CREDIT LINES CREDIT RISK CREDITOR CREDITOR RIGHTS CURRENCY CURRENCY BOARD CURRENCY BOARD ARRANGEMENT CURRENCY BOARDS CURRENCY CRISES CURRENCY CRISIS CURRENCY DEVALUATION CURRENCY MISMATCH DEBT CRISIS DEBT ISSUES DEBT PAYMENT DEFAULT PROBABILITIES DEFAULT PROBLEM DEPOSIT DEPOSIT INSURANCE DEPOSITORS DEPOSITS DEVALUATION DEVELOPING COUNTRIES DEVELOPMENT BANK DISCLOSURE REQUIREMENTS DOLLAR DEBT DOMESTIC BANKS DOMESTIC CURRENCY ECONOMIC DEVELOPMENT EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKET ECONOMY EMERGING MARKETS EXCHANGE RATE EXTERNAL BORROWING FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSETS FINANCIAL CONTAGION FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FRAGILITY FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL STRUCTURE FINANCIAL SYSTEM FINANCIAL SYSTEMS FIXED EXCHANGE RATE FOREIGN BANK FOREIGN BANKS FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN CURRENCY DEBT FOREIGN DEBT FOREIGN EXCHANGE FOREIGN FUND FOREIGN FUND MANAGERS FOREIGN INVESTMENT FOREIGN INVESTMENTS FOREIGN INVESTORS FOREIGN LENDER FOREIGN LENDERS FRAUD GOVERNMENT BONDS HIDDEN ACTIONS HIDDEN INFORMATION HOLDING INDEBTED HOUSEHOLDS INFLATION INFORMATION DISCLOSURE INSTITUTIONAL DEVELOPMENT INSTRUMENT INSURANCE INSURANCE COMPANY INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL INSTITUTION INTERNATIONAL FINANCIAL MARKETS INTERNATIONAL INVESTORS INTERNATIONAL LENDING INTERNATIONAL MARKET INVESTING INVESTMENT FUNDS ISSUANCE LACK OF CREDIBILITY LEGAL PROTECTION LENDER LENDER OF LAST RESORT LIMITED LIABILITY LIQUIDATION LIQUIDITY LIQUIDITY CRISIS LIQUIDITY PROBLEM LIQUIDITY RISK LOAN LOAN PORTFOLIO LOANABLE FUNDS LOCAL BANK LONG-TERM DEBT LONG-TERM INVESTMENTS MARKET DISCIPLINE MARKET FAILURE MARKET FAILURES MATURITIES MATURITY MATURITY MISMATCH MATURITY STRUCTURE MONETARY FUND MONETARY POLICY MONETARY STABILITY MONEY MARKET MONEY SUPPLY MORAL HAZARD MORTGAGES MUTUAL FUND OFFSHORE FINANCIAL CENTERS OPAQUE SMALL BUSINESSES OPEN ECONOMY PAYMENT SYSTEM POLICY RESPONSES POLITICAL ECONOMY POLITICAL STABILITY PRIVATE BANKS PROBABILITY OF DEFAULT PROPERTY RIGHTS PRUDENTIAL REGULATION PRUDENTIAL SUPERVISION PUBLIC BANKS PUBLIC DEBT REAL EXCHANGE RATE REPAYMENT RESERVES RETURN RETURNS RIGHTS OF CREDITORS RISK MANAGEMENT RISK OF CONTRACT REPUDIATION RISK OF EXPROPRIATION RISK SHARING RULE OF LAW SAFETY NET SAFETY NETS SECURITIES SHARE OF ASSETS SHORT MATURITY SHORT-TERM ASSETS SHORT-TERM DEBT SHORT-TERM DEPOSITS SMALL BUSINESS SMALL INVESTOR SOLVENCY SOVEREIGN DEBT SOVEREIGN DEBT RESTRUCTURING STOCK MARKET STOCK MARKET CAPITALIZATION STOCK MARKETS SUBORDINATED DEBT TAX TERMS OF CREDIT TRANSACTION TRANSPARENCY TREASURY TREASURY BILLS TURNOVER UNDERDEVELOPED CAPITAL MARKET
Online Access:	http://documents.worldbank.org/curated/en/2006/08/17591332/banking-regulation-emerging-markets-role-external-discipline http://hdl.handle.net/10986/16394

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Summary:	This article reviews the main issues of regulating and supervising banks in emerging markets with a view toward evaluating the long-run options. Particular attention is paid to Latin America and East Asia. These economies face a severe policy commitment problem that leads to excessive bailouts and potential devaluation of claims of foreign investors. This exacerbates moral hazard and makes a case for importing external discipline (for example, acquiring foreign short-term debt). However, external discipline may come at the cost of excessive liquidation of entrepreneurial projects. The article reviews the tradeoffs imposed by external discipline and examines various arrangements, such as narrow banking, foreign banks and foreign regulation, and the potential role for an international agency or international lender of last resort.

Banking and Regulation in Emerging Markets : The Role of External Discipline

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