Book contents
- Frontmatter
- Contents
- List of figures and table
- The Raffaele Mattioli Lectures
- Preface
- Part I The principles of the new paradigm
- Part II Applications of the new paradigm
- 8 Monetary policy
- 9 Regulatory policy and the new paradigm
- 10 Financial market liberalization
- 11 Restructuring the banking sector
- 12 Regional downturns and development and monetary policy
- 13 The East Asia crisis
- 14 The 1991 US recession and the recovery
- 15 The new paradigm and the “new economy”
- 16 Concluding remarks
- Bibliography
- Index
10 - Financial market liberalization
Published online by Cambridge University Press: 12 May 2010
- Frontmatter
- Contents
- List of figures and table
- The Raffaele Mattioli Lectures
- Preface
- Part I The principles of the new paradigm
- Part II Applications of the new paradigm
- 8 Monetary policy
- 9 Regulatory policy and the new paradigm
- 10 Financial market liberalization
- 11 Restructuring the banking sector
- 12 Regional downturns and development and monetary policy
- 13 The East Asia crisis
- 14 The 1991 US recession and the recovery
- 15 The new paradigm and the “new economy”
- 16 Concluding remarks
- Bibliography
- Index
Summary
One important form of regulation in many developing countries is entry restrictions, especially for foreign banks. These seemingly protectionist measures have been widely criticized, and the WTO has recently been involved in liberalizing the market for financial services. In our earlier discussion, we decomposed a change in the regulatory environment into impacts on constraints (including resource constraints) and incentives. We can approach this aspect of financial services liberalization from the same perspective. Here, we want to use the framework of part I to assay the impact of these measures on both the flow of credit to domestic firms and the stability of the financial system, and hence the economy.
One of the advantages of such opening up is presumably that it creates credit institutions which can make use of foreign expertise to provide credit more efficiently and effectively. On the other hand, the foreigners' information base is often markedly weaker, at least with respect to small and medium–sized domestic firms, than is that of domestic banks. Foreign banks lend disproportionately to foreign firms, where they are likely to have an informational advantage (that is, they are likely to be better informed about such firms than are domestic banks, which are likely to be better informed about small and medium–sized domestic firms).
In the model of restrictive banking, we saw how a change in the supply of deposits to any bank affects its lending activity.
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- Chapter
- Information
- Towards a New Paradigm in Monetary Economics , pp. 234 - 238Publisher: Cambridge University PressPrint publication year: 2003