Prudential Regulation of Banks in Less Developed Economies

13 Pages Posted: 12 Dec 2002

See all articles by Syed Mansoob Murshed

Syed Mansoob Murshed

Institute of Social Studies (ISS)

Djono Subagjo

United Nations - Institute for New Technologies (UNU/INTECH)

Abstract

This article argues that developing countries face inherent obstacles in setting up efficient financial regulation, and building up a sound banking sector: The presence of multiple tasks and multiple principals, poor institutions, lack of economies of scale in the banking sector as well as regulatory supervision, and the lack of reputation. Developing countries need a regulatory framework that rewards prudent risk-taking, but punishes misconduct. This is likely to involve a combination of input-based measures impacting on bankers' incentives, with a few direct controls on the output of the sector. The article concludes with a list of policy options whose appropriateness is judged by their 'friendliness' with local circumstances.

Suggested Citation

Murshed, Syed Mansoob and Subagjo, Djono, Prudential Regulation of Banks in Less Developed Economies. Available at SSRN: https://ssrn.com/abstract=318623

Syed Mansoob Murshed (Contact Author)

Institute of Social Studies (ISS) ( email )

PO Box 29776
2502 LT The Hague, 2518 AX
Netherlands
+31 70 426 0591 (Phone)
+31 70 426 0799 (Fax)

Djono Subagjo

United Nations - Institute for New Technologies (UNU/INTECH) ( email )

Keizer Karelplein 19
6211 TC Maastricht
Maastricht
Netherlands
31 43 350 6383 (Phone)
31 43 350 6399 (Fax)

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