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Financial crisis, structure and reform

Franklin Allen (), Xian Gu and Oskar Kowalewski ()

Journal of Banking & Finance, 2012, vol. 36, issue 11, 2960-2973

Abstract: In this study, we examine the relationship between the structure of financial systems and financial crises. Using cross-country data on financial structures and crises, we find that there is a significant short-term reversal in development of the banking sector and the stock market during both bank crises and market crashes, with the corporate bond market moving in the same direction as bank credit. However, the results are significant for countries with market-based financial systems but not for countries with bank-based financial systems. Emerging markets have mainly bank-based financial systems, which may explain why these markets require more time to recover from economic downturns after a financial crisis. Therefore, we argue that governments should emphasize a balanced financial system structure as it helps countries to recover from financial crises more quickly compared with countries that lack such balanced structures.

Keywords: Financial system structure; Financial crises; Financial reform (search for similar items in EconPapers)
JEL-codes: G10 G20 G28 (search for similar items in EconPapers)
Date: 2012
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