A Framework for the Analysis of Financial Reforms and the Cost of official Safety Nets

By Peter Isard, Liliana Rojas-Suárez, Donald J Mathieson

May 1, 1992

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Peter Isard, Liliana Rojas-Suárez, and Donald J Mathieson. A Framework for the Analysis of Financial Reforms and the Cost of official Safety Nets, (USA: International Monetary Fund, 1992) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper builds a multiperiod, general equilibrium framework for analyzing the macroeconomic effects of financial reforms in developing countries and the costs of maintaining official safety nets under the financial system during such reforms. While a financial liberalization yields efficiency gains, adverse macroeconomic effects can arise if the creditworthiness of the nonfinancial sector is weak. In this situation, financial liberalization may also increase the authorities’ expected deposit insurance funding obligations even with strong prudential supervision. Moreover, given the distortions in a repressed financial system, an increase in the required bank capital-asset ratio may increase the funding obligations associated with deposit insurance, particularly when the debt-servicing capacity of nonfinancial firms is low.

Subject: Banking, Deposit insurance, Interest rate ceilings, Loans, Real wages

Keywords: WP

Publication Details

Pages:

70
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/031
Stock No:

WPIEA0311992
ISBN:

9781451844962
ISSN:

1018-5941

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