Banking deregulation and financial stability in emerging countries
DOI:
https://doi.org/10.59051/joaf.v2i1.9Keywords:
deregulation, banks, movement of capital, financial stability, financial crisesAbstract
Banking deregulation was initiated by the developed countries from the 1960s onwards and increased during the 1980s by emerging and developing countries. In addition, recent decades have been marked by major banking crises. Hence the question about the link between deregulation of banks and recent crises.
This article first presents the literature that has studied the link between financial liberalization and the stability of banks. It studies at the same time the case of developed and emerging countries, but no study has exclusively covered a large sample of emerging countries. The rest of the article presents an empirical model for estimating the effect of financial liberalization on the probability of banking crises. This study requires the preliminary construction of financial liberalization indices that have been developed according to the classical (binary) method and according to another more precise method (AFD) and which, to our knowledge, has never been used before in this field. The results of the estimates show a strong correlation between liberalization indices and the probability of a banking crisis.
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