Regulatory Lessons from the Crisis of Costa Rica’s Mutual Fund Industry

IMF Working Papers, December 1, 2006

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Regulatory Lessons from the Crisis of Costa Rica’s Mutual Fund Industry

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Bibliographic details

• Authors: Ana Carvajal
• Published: December 1, 2006
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451865486.001

Overview and context

• In 2004, the mutual fund industry of Costa Rica experienced a massive run by investors that reduced the industry to half its size in a month.
• The paper analyzes how weaknesses in the regulatory framework contributed to the crisis and draws lessons for developing countries.
• Author: Ana Carvajal. Publication date: December 1, 2006. Pages: 26. Issue: 288. Series: Working Paper No. 2006/288.

Key findings

• Regulatory weaknesses played a material role in the 2004 run that halved the industry within a month.
• The analysis demonstrates the need for developing countries to design a multi-pillar framework for securities regulation.
• Micro-level findings:
  • Importance of market conduct rules.
  • Challenges that the implementation of mark-to-market poses for developing markets.
• Broader capacity and market-framing issues:
  • Need to strengthen financial literacy.
  • Need to strengthen capacity building for regulators and market participants.

Policy recommendations and regulatory lessons

• Design and implement a multi-pillar framework for securities regulation in developing countries.
• Strengthen financial literacy initiatives to reduce investor runs and improve market stability.
• Enhance capacity building for regulators and market participants to manage market conduct and disclosure.
• Establish and enforce market conduct rules to address behavior of fund managers and investor protections.
• Carefully assess implementation of mark-to-market accounting in developing markets given associated operational and market-stability challenges.

Subject classification and keywords

• Subject: Banking, Money markets, Mutual funds, Nonbank financial institutions, Securities markets
• Keywords: crisis investor, fund manager, investor fair, investors calm, market conduct rule, WP

Publication identifiers

• DOI: https://doi.org/10.5089/9781451865486.001
• Stock No: WPIEA2006288
• ISBN: 9781451865486
• ISSN: 1018-5941
• Volume: 2006

Regulatory Lessons from the Crisis of Costa Rica’s Mutual Fund Industry, Ana Carvajal, IMF Working Papers 2006, 288 (2006).

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