Financial Liberalization, Credit Market Imperfections and Financial System Stability

Download or read book Financial Liberalization, Credit Market Imperfections and Financial System Stability written by Tim Niepel and published by GRIN Verlag. This book was released on 2015-06-03 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2013 in the subject Business economics - Investment and Finance, grade: 1,5, Utrecht University (Utrecht School of Economics), language: English, abstract: Financial liberalization stimulates competition and thereby supposedly increases the efficiency of investment. A simple credit market model is developed to show that such efficiency improvements may be disturbed by competition-induced incentives for banks to accept higher default rates, which result in instability of the financial system. Thereby we offer a complementary explanation to the relationship between competition and stability in financial markets. Consequently we argue that government intervention, in the form of intelligent regulation, is necessary to ensure the development of sustainable financial markets.