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A Framework for the Analysis of Financial Reforms and the Cost of official Safety Nets
Author:
Mr. Peter Isard
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Ms. Liliana Rojas-Suárez null

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Mr. Donald J Mathieson
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Series:
IMF Working Papers
Volume/Issue:
Volume 1992: Issue 031
Language:
English
Publication Date:
01 May 1992
DOI:
https://doi.org/10.5089/9781451844962.001
ISBN:
9781451844962
ISSN:
1018-5941
Pages:
70
Keywords:
WP
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper builds a multiperiod, general equilibrium framework for analyzing the macroeconomic effects of financial reforms in developing countries and the costs of maintaining official safety nets under the financial system during such reforms. While a financial liberalization yields efficiency gains, adverse macroeconomic effects can arise if the creditworthiness of the nonfinancial sector is weak. In this situation, financial liberalization may also increase the authorities’ expected deposit insurance funding obligations even with strong prudential supervision. Moreover, given the distortions in a repressed financial system, an increase in the required bank capital-asset ratio may increase the funding obligations associated with deposit insurance, particularly when the debt-servicing capacity of nonfinancial firms is low.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund