Rethinking Financial Deepening
Stability and Growth in Emerging Markets
Business & Finance, Economics, Money & Monetary Policy, Macroeconomics
| Author: | Ratna Ms. Sahay, Martin Cihak, Papa Mr. N'Diaye, Adolfo Mr. Barajas, Diana Ms. Ayala Pena, Ran Bi, Yuan Gao, Annette Kyobe, Lam Nguyen, Christian Saborowski, Katsiaryna Svirydzenka, Reza Mr. Yousefi | ISBN: | 9781475570199 |
| Publisher: | INTERNATIONAL MONETARY FUND | Publication: | May 4, 2015 |
| Imprint: | INTERNATIONAL MONETARY FUND | Language: | English |
| Author: | Ratna Ms. Sahay, Martin Cihak, Papa Mr. N'Diaye, Adolfo Mr. Barajas, Diana Ms. Ayala Pena, Ran Bi, Yuan Gao, Annette Kyobe, Lam Nguyen, Christian Saborowski, Katsiaryna Svirydzenka, Reza Mr. Yousefi |
| ISBN: | 9781475570199 |
| Publisher: | INTERNATIONAL MONETARY FUND |
| Publication: | May 4, 2015 |
| Imprint: | INTERNATIONAL MONETARY FUND |
| Language: | English |
The global financial crisis experience shone a spotlight on the dangers of financial systems that have grown too big too fast. This note reexamines financial deepening, focusing on what emerging markets can learn from the advanced economy experience. It finds that gains for growth and stability from financial deepening remain large for most emerging markets, but there are limits on size and speed. When financial deepening outpaces the strength of the supervisory framework, it leads to excessive risk taking and instability. Encouragingly, the set of regulatory reforms that promote financial depth is essentially the same as those that contribute to greater stability. Better regulation—not necessarily more regulation—thus leads to greater possibilities both for development and stability.
The global financial crisis experience shone a spotlight on the dangers of financial systems that have grown too big too fast. This note reexamines financial deepening, focusing on what emerging markets can learn from the advanced economy experience. It finds that gains for growth and stability from financial deepening remain large for most emerging markets, but there are limits on size and speed. When financial deepening outpaces the strength of the supervisory framework, it leads to excessive risk taking and instability. Encouragingly, the set of regulatory reforms that promote financial depth is essentially the same as those that contribute to greater stability. Better regulation—not necessarily more regulation—thus leads to greater possibilities both for development and stability.
