Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries: Strategies for Financial Reforms

International Monetary Fund

No 1990/008, IMF Working Papers from International Monetary Fund

Abstract: This paper identifies macroeconomic stability, effective bank supervision, and an appropriate sequencing of stabilization, banking regulations, and interest rate policies as common characteristics of the relatively successful experiments in financial sector liberalization. Recent theoretical developments help to explain why interest rates in free markets for bank credit may fall short of market-clearing levels, or may rise to risky levels with adverse consequences for financial institutions and the economy at large. To prevent such outcomes, macro-economic stabilization and improved bank supervision should generally precede complete removal of control on bank interest rates.

Keywords: WP; interest rate; bank; loan; credit market; interest rate liberalization; loan interest rate; managed interest rates; interest rate regulation; interest rate reform; equilibrium interest rate; interest rate level; lending interest rate; bank equilibrium interest rate; Bank supervision; Moral hazard; Commercial banks; Bank credit; Loans; Asia and Pacific (search for similar items in EconPapers)
Pages: 34
Date: 1990-01-01
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1990/008

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