Financial Liberalization and Banking Crises: A Cross-Country Analysis-super-

Apanard Penny Angkinand Prabha (), Wanvimol Sawangngoenyuang and Clas Wihlborg

International Review of Finance, 2010, vol. 10, issue Financial Crises and Global Market Integration: Part II, pages 263-292

Abstract: Several studies indicate that financial liberalization contributes to the likelihood of a financial crisis. We focus on banking crises and argue that they are most likely to occur after an intermediate degree of liberalization. Using a recently updated dataset for financial reforms in 48 countries between 1973 and 2005, we find an inverted U-shaped relationship between liberalization and the likelihood of crisis. We ask whether the relationship remains when institutional characteristics of countries and dynamic effects of liberalization are considered. The empirical results indicate that the relationship between liberalization and banking crises depends strongly on the strength of capital regulation and supervision. With very weak regulation and supervision, the probability of banking crises is increasing with liberalization but this relationship is reversed as regulation and supervision become stricter. The most important type of liberalization in relation to banking crises seems to be behavioral (a relaxation of interest and credit controls). A policy implication is that positive growth effects of liberalization can be achieved without increasing the risk of a banking crisis if appropriate institutions are developed. Copyright (c) 2010 The Authors. Journal compilation (c) International Review of Finance Ltd. 2010.

Date: 2010
References: Add references at CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2443.2010.01114.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:irvfin:v:10:y:2010:i:s1:p:263-292

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1369-412X

Access Statistics for this article

International Review of Finance is edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

More articles in International Review of Finance from International Review of Finance Ltd.
Series data maintained by Wiley-Blackwell Digital Licensing ().