Moreover, liberalization improves financial intermediation, enhancing efficient sectoral and international resource allocation. Moreover, liberalization can also improve service quality. With increased competition, financial institutions are more likely to be attentive to the needs of consumers, and to advise clients on how best to tailor financing packages to meet their specific needs. Liberalization can help to deepen and broaden financial markets by increasing the volume of transactions and spectrum of services, thus reducing volatility and vulnerability to shocks. There are strong reasons to believe that liberalization of financial service trade promotes better macroeconomic policies and government regulation.
Monetary policy is likely to improve.
Credit and interest ceilings often serve as monetary policy instruments to control credit expansion and inflation in a closed financial system. Liberalization requires the replacement of such controls by indirect policy instruments, such as open market operations, to control liquidity. It also strengthens the incentive for governments to eliminate distortionary interventions and to introduce adequate prudent regulation and supervision of financial institutions. A number of developing, transition and industrialized countries have experienced banking sector problems after deregulation and liberalization in the past 15 years. This has led some experts to conclude that it is liberalization that causes such problems.