Liberalization, prudential supervision, and capital requirements
Subtitle: the policy trade-offs
By: prepared by Elina Ribakova.
Contributors: International Monetary Fund. European Dept.
Series: IMF working paper -- WP/05/136
Publisher: International Monetary Fund, European Dept.
Published: 2005
Place of publication: Washington, D.C
Language: eng
Number of pages: 14
Subjects: International finance -- Econometric models.; Finance -- Government policy -- Econometric models.; Capital movements -- Econometric models.; Banks and banking -- State supervision -- Econometric models.
Description: 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.
Notes: "July 2005."

Includes bibliographical references (p. 12-14).

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