{
  "title": "Liberalization, Prudential Supervision, and Capital Requirements: The Policy Trade-Offs",
  "publication": "IMF Working Papers, July 1, 2005",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/liberalization-prudential-supervision-and-capital-requirements-the-policy-trade-offs-18284",
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  "summary": "While deregulated financial markets and strong competition are commonly viewed as prerequisites for successful economic development, recent empirical evidence suggests that financial liberalization, if not well phased, can lead to costly financial crises.",
  "sections": [
    {
      "heading": "Key findings and analytical focus",
      "content": "- Focuses on the roles of minimum capital requirements and prudential supervision in promoting financial stability during financial liberalization.\n- Extends the Hellmann, Murdock, and Stiglitz model to analyze the effects of prudential supervision.\n- Demonstrates a trade-off between the quality of supervision and the level of minimum capital requirements.\n- Core conclusion: Where prudential supervision is poor, higher capital requirements are optimal.\n- Highlights that financial liberalization, if not well phased, can lead to costly financial crises."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Strengthen prudential supervision to allow lower minimum capital requirements while maintaining financial stability.\n- In environments with weak supervision, implement higher minimum capital requirements to mitigate crisis risk.\n- Consider phasing of financial liberalization carefully to avoid destabilizing effects if supervisory capacity is limited."
    },
    {
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      "content": "- Subject: Banking, Capital adequacy requirements, Competition, Deposit rates, Financial crises\n- Keywords: bank, deposit rate, gambling bank, WP\n\n---\n\n Content in this bundle\n\n- Wp05136\n  - Wp05136 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp05136 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/liberalization-prudential-supervision-and-capital-requirements-the-policy-trade-offs-18284"
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    "Authors: Elina Ribakova",
    "Published: July 1, 2005",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451861556.001",
    "Focuses on the roles of minimum capital requirements and prudential supervision in promoting financial stability during financial liberalization.",
    "Extends the Hellmann, Murdock, and Stiglitz model to analyze the effects of prudential supervision.",
    "Demonstrates a trade-off between the quality of supervision and the level of minimum capital requirements.",
    "Core conclusion: Where prudential supervision is poor, higher capital requirements are optimal.",
    "Highlights that financial liberalization, if not well phased, can lead to costly financial crises.",
    "Strengthen prudential supervision to allow lower minimum capital requirements while maintaining financial stability.",
    "In environments with weak supervision, implement higher minimum capital requirements to mitigate crisis risk.",
    "Consider phasing of financial liberalization carefully to avoid destabilizing effects if supervisory capacity is limited.",
    "Subject: Banking, Capital adequacy requirements, Competition, Deposit rates, Financial crises",
    "Keywords: bank, deposit rate, gambling bank, WP",
    "**Wp05136**"
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