Vives, Xavier2013-12-192013-12-192006-08-05World Bank Research Observerdoi:10.1093/wbro/lkl002https://hdl.handle.net/10986/16394This article reviews the main issues of regulating and supervising banks in emerging markets with a view toward evaluating the long-run options. Particular attention is paid to Latin America and East Asia. These economies face a severe policy commitment problem that leads to excessive bailouts and potential devaluation of claims of foreign investors. This exacerbates moral hazard and makes a case for importing external discipline (for example, acquiring foreign short-term debt). However, external discipline may come at the cost of excessive liquidation of entrepreneurial projects. The article reviews the tradeoffs imposed by external discipline and examines various arrangements, such as narrow banking, foreign banks and foreign regulation, and the potential role for an international agency or international lender of last resort.en-USCC BY-NC-ND 3.0 IGOACCOUNTINGACCOUNTING STANDARDSAGENCY PROBLEMAGENCY PROBLEMSAMOUNT OF COLLATERALASSET RATIOASYMMETRIC INFORMATIONAUCTIONBAILOUTBAILOUTSBALANCE SHEETSBANK ACCOUNTSBANK ASSETSBANK LOANSBANK REGULATIONBANKING CRISESBANKING CRISISBANKING INSTITUTIONSBANKING REGULATIONBANKING SECTORBANKING SYSTEMBANKING SYSTEMSBANKRUPTCYBONDHOLDERSBORROWERBORROWING CAPACITYBUSINESS CYCLESCAPITAL FLOWSCAPITAL MOVEMENTSCAPITAL REQUIREMENTCAPITAL REQUIREMENTSCENTRAL BANKCENTRAL BANK INDEPENDENCECENTRAL BANKSCERTIFICATES OF DEPOSITCOLLATERALCOMMERCIAL BANKCONSUMER CREDITCONTRACT ENFORCEMENTCONTRACTUAL RELATIONSHIPCOORDINATION FAILURECREDIT INSTITUTIONSCREDIT LINESCREDIT RISKCREDITORCREDITOR RIGHTSCURRENCYCURRENCY BOARDCURRENCY BOARD ARRANGEMENTCURRENCY BOARDSCURRENCY CRISESCURRENCY CRISISCURRENCY DEVALUATIONCURRENCY MISMATCHDEBT CRISISDEBT ISSUESDEBT PAYMENTDEFAULT PROBABILITIESDEFAULT PROBLEMDEPOSITDEPOSIT INSURANCEDEPOSITORSDEPOSITSDEVALUATIONDEVELOPING COUNTRIESDEVELOPMENT BANKDISCLOSURE REQUIREMENTSDOLLAR DEBTDOMESTIC BANKSDOMESTIC CURRENCYECONOMIC DEVELOPMENTEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET ECONOMIESEMERGING MARKET ECONOMYEMERGING MARKETSEXCHANGE RATEEXTERNAL BORROWINGFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL ASSETSFINANCIAL CONTAGIONFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL INFORMATIONFINANCIAL INSTITUTIONSFINANCIAL MARKETSFINANCIAL STRUCTUREFINANCIAL SYSTEMFINANCIAL SYSTEMSFIXED EXCHANGE RATEFOREIGN BANKFOREIGN BANKSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN DEBTFOREIGN EXCHANGEFOREIGN FUNDFOREIGN FUND MANAGERSFOREIGN INVESTMENTFOREIGN INVESTMENTSFOREIGN INVESTORSFOREIGN LENDERFOREIGN LENDERSFRAUDGOVERNMENT BONDSHIDDEN ACTIONSHIDDEN INFORMATIONHOLDINGINDEBTED HOUSEHOLDSINFLATIONINFORMATION DISCLOSUREINSTITUTIONAL DEVELOPMENTINSTRUMENTINSURANCEINSURANCE COMPANYINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL BANKSINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETINTERNATIONAL CAPITAL MARKETSINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL INSTITUTIONINTERNATIONAL FINANCIAL MARKETSINTERNATIONAL INVESTORSINTERNATIONAL LENDINGINTERNATIONAL MARKETINVESTINGINVESTMENT FUNDSISSUANCELACK OF CREDIBILITYLEGAL PROTECTIONLENDERLENDER OF LAST RESORTLIMITED LIABILITYLIQUIDATIONLIQUIDITYLIQUIDITY CRISISLIQUIDITY PROBLEMLIQUIDITY RISKLOANLOAN PORTFOLIOLOANABLE FUNDSLOCAL BANKLONG-TERM DEBTLONG-TERM INVESTMENTSMARKET DISCIPLINEMARKET FAILUREMARKET FAILURESMATURITIESMATURITYMATURITY MISMATCHMATURITY STRUCTUREMONETARY FUNDMONETARY POLICYMONETARY STABILITYMONEY MARKETMONEY SUPPLYMORAL HAZARDMORTGAGESMUTUAL FUNDOFFSHORE FINANCIAL CENTERSOPAQUE SMALL BUSINESSESOPEN ECONOMYPAYMENT SYSTEMPOLICY RESPONSESPOLITICAL ECONOMYPOLITICAL STABILITYPRIVATE BANKSPROBABILITY OF DEFAULTPROPERTY RIGHTSPRUDENTIAL REGULATIONPRUDENTIAL SUPERVISIONPUBLIC BANKSPUBLIC DEBTREAL EXCHANGE RATEREPAYMENTRESERVESRETURNRETURNSRIGHTS OF CREDITORSRISK MANAGEMENTRISK OF CONTRACT REPUDIATIONRISK OF EXPROPRIATIONRISK SHARINGRULE OF LAWSAFETY NETSAFETY NETSSECURITIESSHARE OF ASSETSSHORT MATURITYSHORT-TERM ASSETSSHORT-TERM DEBTSHORT-TERM DEPOSITSSMALL BUSINESSSMALL INVESTORSOLVENCYSOVEREIGN DEBTSOVEREIGN DEBT RESTRUCTURINGSTOCK MARKETSTOCK MARKET CAPITALIZATIONSTOCK MARKETSSUBORDINATED DEBTTAXTERMS OF CREDITTRANSACTIONTRANSPARENCYTREASURYTREASURY BILLSTURNOVERUNDERDEVELOPED CAPITAL MARKETJournal ArticleWorld Bank10.1596/16394