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Regulatory lags, liberalization, and vulnerability to banking crises

Garriga, Ana Carolina (2017) 'Regulatory lags, liberalization, and vulnerability to banking crises.' Regulation and Governance, 11 (2). pp. 143-165. ISSN 1748-5983

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This article explores the effect of delays in updating prudential regulation on the likelihood of a country experiencing banking crises, and it disentangles the impact of different aspects of regulation on crisis onset. I argue that delays in revision to banks' prudential regulation allow banks to adopt risky behavior, which increases a country's vulnerability to systemic banking crises. This effect, however, is conditional on the level of liberalization of the financial market. At lower levels of liberalization, banks have stronger incentives to escape the constraints of regulation and to take advantage of regulatory lags. At high levels of liberalization, the effect of regulatory lags is curbed, possibly by market discipline. Statistical analyses on a sample of developed and developing countries from 1974–2005 support this argument and help rule out the competing learning hypothesis. These results suggest that the effects of institutions can vary with the passage of time.

Item Type: Article
Uncontrolled Keywords: banking crisis; liberalization; prudential regulation; regulation; regulatory lag
Subjects: J Political Science > JA Political science (General)
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Government, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 30 Oct 2018 10:25
Last Modified: 18 Aug 2022 13:31

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