Some Lessons for Regulation from Recent Bank Crises

David Llewellyn

Open Economies Review, 2000, vol. 11, issue 1, 69-109

Abstract: Recent bank crises in developed and developing countries have underlined the question of a good “regulatory regime,” which is a wider concept than the set of prudential principles and business rules established by external regulatory agencies. The role of external regulation in fostering a safe and sound banking system is limited. The incentive's structure for private banks and the efficiency of monitoring and supervision have to play a great role. Liberalization of markets can have bad effects in the transitional period, but advantages can be enormous after the system starts to work correctly. The main lesson of recent bank crises is that there needs to be more effective surveillance of financial institutions both by supervisory authorities and by markets. Effective regulation (internal and external) and supervision of banks and financial institutions have the potential to give a major contribution to the stability and robustness of financial system. Copyright Kluwer Academic Publishers 2000

Keywords: bank crises; bad banking practices; incentives; moral hazard; monitoring; supervision; regulation (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1008305423571

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