The Evolving Role of Central Banks
Chapter

2 The Central Bank’s Role in Financial Sector Development

Editor(s):
Patrick Downes, and Reza Vaez-Zadeh
Published Date:
June 1991
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Author(s)
DEENA KHATKHATE

Ideas about the central bank and its role in the economy have gone through various phases during the last four decades. In the 1950s when economic development of the developing countries came to the forefront, the role envisaged for the central bank in the old vintage models of central banking in highly industrial countries was questioned on the ground that it would be too negative to deal with the problems of development. In regulating monetary expansion, earlier central banking principles and praxis used the interest rate as a price of saving and treated all borrowers uniformly, regardless of their ability to bear the burden of loans. It was soon realized that the reach of central banking in economies that are either modernizing or are about to do so would be limited without adequate development of the financial system, both in size and diversity.

It was this desideratum that shaped the concept of central banking in newly developing countries. The accent was on “the strategic or promotional objectives … relating to the development of the financial structure and improving the credit access of underbanked sectors.” As one perceptive economist stated: “A central bank may be regarded as a highly specialized autonomous bureau for monitoring and developing the financial system which is akin to “octopoid” that is, spatially spread, public utility selling prized services to its customers.”1 Two sources provided support for this promotional role of the central bank—one is based on economic theory of externalities and the practices followed by some of the highly developed countries. In the context of growth, money is treated as part of wealth, which is considered to compete with accumulation of physical capital. Since output growth is crucially dependent on physical capital, accumulation of money balances is deemed unproductive, and an appropriate policy contributing to output and growth is to tax the accumulation of money balances by expanding the money supply. The other is based on widespread recourse in most developing countries to low interest rate policies through ceilings on interest rates and credit allocation by guidance of the central banks of governments concerned. Both of these approaches to credit policy were motivated by the “market failures” arguments and the inadequacy of the financial environment to facilitate sharing the risks involved in new investment. Social rates of returns on investment tend to diverge from the private rates of return; they can be equalized only through intervention of one kind or another. Likewise, the type of financial system the developing countries have does not prevent risky investment. As a result, ceilings on nominal interest rates paid and received by banks and the allocation of credit were managed to benefit socially productive activity.

The practical rationale for promotional activities of the central bank emanated from what the central banks of advanced countries like Italy, Japan, the Netherlands, Sweden, and Germany had done, whether or not their central banking statutes permitted or prohibited certain types of activities. The central banks of these countries have used various techniques, such as asset reserve requirements and government borrowing and relending with or without interest rate subsidies to preferred sectors, such as agriculture, housing, exports, small businesses, and underdeveloped regions. These promotional measures are sought to be justified on the ground that the sectors are typically those that tend to suffer disproportionately from credit restrictions arising from deflationary policies.

As often happens in the real world, virtue carried to excess ceases to be a virtue. The same occurs with the promotional policies of a central bank. The preferential interest rates become pervasive to the extent that the central bank becomes the source of money for use by favored sectors of the economy. It also leads to the shrinkage of savings in the economy. Diversified credit programs not only exacerbate inflationary pressure but also grossly distort the economy, weaken the instruments of monetary control, and eventually involve the banking system in financial distress. As a consequence, a swing occurs in the opinion of both policymakers and academics away from the promotional aspects of central banking to “demotional” financial policies—if such an expression can be coined. The latter, well articulated in what is commonly described as financial liberalization, has taken central banking to the other extreme, so much so that it is likely to run the same risk of failure as earlier promotional policies of the central bank.

I will present in capsule form why financial sector development is an integral part of economic development, which is sought to be promoted by a central bank as a matter of deliberate policy. I will then emphasize how that policy leads to the command approach to monetary or central banking policy formulation and, finally, end by pointing out some danger spots in totally reversing promotional policies. The last point is important because the experiences of several countries, particularly those in Latin America, have conclusively shown that financial liberalization introduced at wrong times disregards the benign aspects of intervention for prudential purposes by the central bank and the government.

Money in the Development Process

There is renewed appreciation of the role of money in the development process, aided in part by recent theoretical and empirical insights derived from the accumulated experiences of several developing countries.2 Importance is attributed to money as a conduit for savings from those who have it in excess to the potential investors so central to the development process. Money is one among many financial assets used to transfer savings, which means that development of a financial system that generates and diversifies financial assets is necessary for accelerating economic development; the central bank, at the apex of such a system, has a crucial role in shaping it.

Theories underlying money’s role in the development process vary according to the view taken toward the determination of the investment rate in developing countries. In subsistence economies, savers and investors tend to be identical. In the absence of financial markets, private investment depends heavily on prior self-saving. Before accelerating the pace of development, internal financial constraints must be broken. Fiscal policies to encourage private saving and heavy reliance on government investment are typical efforts to overcome inefficient self-finance in developing countries.

Investment can also be initiated by recourse to credit creation, which renders money and credit more of a causal factor. With the conditions prevailing in developing countries, such credit-induced investment is a sure prescription for inflation. In theory, there can be counteracting forces. Given the level of money wages, profits would increase in relation to the gross national income when prices rise, and if the propensity to save of profit earners is higher than that of wage earners, the aggregate saving ratio would tend to rise to catch up with the raised level of investment. But the mechanism by which the saving ratio moves is not so automatic and smooth as often implied. When prices rise, destabilizing price expectations tend to accentuate inflationary pressure, thereby depressing the profit and saving ratios.

If the return is unattractive, less is saved than might be. The return is usually low when saving is for self-investment or lending in the very limited “neighborhood market.” Financial assets in this environment will be scarce and illiquid. On the other side, many potentially high-yielding investments are never made because funds are insufficient; what funds are available flow instead into less productive but more familiar and secure hands. Earlier analyses on aggregate saving and investment obscured these problems of efficiently utilizing what is saved. Individual economic units endowed with entrepreneurial talent and drive are not generally the same units that have surplus resources to invest. What is crucial, from the point of view of the development process, is the existence of channels through which the resources of surplus units can be transmitted to those in greatest need of those resources. Without such channels, economic growth fails to reach feasible rates as saving either remains sterile or is misallocated. It is in establishing such channels and in improving their efficiency that the central bank comes into its own.

Bank Intermediation and Economic Development

In the early stages of economic development, intersectoral flows take place through direct lending. That is, surpluses from savers in one sector are lent directly on the basis of close contacts with investors in other sectors; no paper, as such, is used in mediating these transactions. The market for credit by this direct form of lending is described as an unorganized credit market. As the economy expands, personal contacts dwindle and informal, direct forms of lending and borrowing are substituted more and more by indirect forms involving the use of money. Replacement of direct lending by bank intermediation raises the ratio of money to national income, which implies a release of real resources. It follows that in such a context money creation itself is the channel of transferring surplus saving to investing sectors. The real resources freed in this way reflect the real quantity of money willingly held and hence cannot be forced by simply supplying more nominal money. Monetization is a complex process, however, involving public habits, as well as the “quality” of the available monetary assets.

The saving units or sectors accumulate financial claims on the investing units, or on financial intermediaries which then transmit the funds to the investing units. Over time, these modes of lending lead to an ever-growing ratio of financial assets of all kinds to income and wealth with a concomitant rise in saving and investment ratios. Savers and investors, who hitherto have been scattered and isolated from each other, are joined together by various kinds of credit instruments and financial institutions. In brief, this implies that the market for credit becomes organized, wide, and unified—fully exposed to the price mechanism.

Issues of central banking policies are thus thrown into sharper focus. If the development of the economy is to be accelerated, it is essential that the resources saved by surplus sectors be put to the most productive uses and that the amount of such surpluses be increased. Since both of these require providing more attractive financial assets for surplus units as a repository of transferable savings, policies should be such as to supply the financial assets that are demanded by the surplus sectors.

The flow of funds between various economic units creates assets and liabilities in the process, but the structure of these assets and liabilities is not the same in every phase of economic development. Empirical evidence suggests that the income elasticity of demand for money, however defined, is inversely related to the state of development of money and capital markets. This means that in the early stages of development, when the economy is poorly equipped with a financial system, money is most sought after as a repository of wealth. As credit markets become better organized, the range of assets for holding saving is widened to include bonds, shares, etc. Desire for a variegated pattern of financial assets is motivated by such factors as risk aversion of savers (lenders) in addition to their transaction and liquidity needs. Hence, financial assets other than money need to be created if saving is to be fully mobilized for financing investment.

The objective is not simply to increase aggregate saving so much as to enlarge the amount of transferable saving. This can be achieved through altering the structure of saving of the surplus spending units, which in developing countries are, by and large, in the household sector. Most of the saving of the units in the household sector is generally invested in physical assets, such as goods or gold, which contribute little or nothing to economic growth. Much of saving invested in business enterprises is even wasted (i.e., it yields a lower return than it could), as fragmented or nonexistent financial markets force savers to invest excessively in their own activities. There is a compelling need for the ratio of financial assets to total saving of the household sector to grow as fast as possible.

Economic growth means increased productive capability. This requires more and better tools and equipment and a more skilled labor force; without resources being made available, these needs cannot be met. On the other hand, all the resources in the world will contribute nothing to economic growth if not used productively. The growth impact of given resources (saving) will reflect the efficiency with which they are utilized. Money and financial assets in general stand at the center of this process; they are the vital link.

Interest Rate and Credit Policies

As noted earlier, the promotional aspects of central banking took two predominant forms—subsidized interest rate policy and directed credit programs to boost the growth of the disadvantaged sectors of the economy. Both policies, however, stultified the growth of the financial system. During 1974–85, in developing countries with positive real interest rates, the ratio of gross domestic product (GDP) to M3, which can be taken as representing the depth of the financial system, increased by 40.3 percent as against 34.0 and 30.0 percent, respectively, in the case of countries with moderately and strongly negative real interest rates. The same could be said about the inflation rate in these countries, which was higher in those with subsidized interest rates than those without them. Similar is the story of the promotional policies directed toward priority sectors, which benefitted from lax lending standards and poor monitoring of use of credits.

Special credit programs were widespread in most countries. In Pakistan, about 70 percent of new lending by the leading national banks was targeted by the government through the central bank. In India, the technique of directed credit employed relies on setting margins—quantum in terms of proportion of total credit and the interest rate subsidy. The proportion of such credit has varied over the years, depending on public policy objectives, and is currently around 40 percent of total credit. These credits are costly operations, as they involve a heavy subsidy estimated to be about 6.6 percent of banks’ earnings. The accumulation of bad and doubtful debts, estimated to be roughly 25–30 percent of deposits, has almost wiped out the entire capital base of several banks. In Yugoslavia, about 58 percent of short-term loans were directed credits; in Brazil, it was 70 percent.

Whatever the consequences of these directed credit programs for the growth of the economies and the distribution of income, their impact on the viability of the financial systems and their growth has been anything but salutary. Many directed credits have become nonperforming loans. The ability to borrow at cheap rates encouraged less productive investment. Those who borrowed for projects with low financial return could not repay their loans. In other cases, borrowers willingly defaulted: they believed that because their credit was in a favored category, no action could be taken. The distorted allocation of resources and the erosion of financial discipline have left financial intermediation unprofitable and, in many cases, have left financial intermediaries insolvent. Extensive refinancing schemes at low interest rates have reduced the need for intermediaries to mobilize resources on their own, leading to a lower level of financial intermediation. Moreover, by encouraging firms to borrow from banks, directed credit programs have impeded the development of capital markets.

Open Market Operations and Reserve Requirements

Perhaps the most deleterious impact of directed credit is felt on the effectiveness of central banking policy in developing countries. Central banking policy, or, broadly interpreted, monetary policy, has differed considerably from the normal concept of monetary policy that is identified with the regulation of cost and availability of credit. Its identity as an independent tool has been erased; it has come to be operated as an adjunct of an overall economic policy that remains always strongly interventionist in these countries. In actual practice, it has come to be only a penumbra of fiscal policy, with greater accent on direct methods of control. Occasional departures from this mold of monetary policy occur, but the basic tenor continues. In fact, such attempts at change only reveal how difficult it is to even slightly modify the command nature of monetary policy without having to liberalize the whole system.

This can be illustrated by referring to two familiar instruments of central banking policy—open market operations and reserve requirements. Of these, the first one, apart from having cosmetic value, serves more as a tool of fiscal policy rather than of monetary policy. It is a misnomer to describe open market operations in developing countries as a monetary policy instrument.

Open market operations are conducted by a central bank mainly with a view to directly or indirectly affect the reserves of banks and thereby the extent of monetary expansion and in the process to create and maintain a desired pattern of yields on government securities and generally to help the government raise resources from the capital market. Thus, this policy instrument has two aspects viz. the monetary policy aspect and the fiscal aspect. For the conduct of open market operations as a monetary instrument, the market for government securities should be well organized, broad-based and deep, so that the central bank is in a position to sell and buy securities to the extent it considers desirable. A prerequisite for the emergence of such markets is that the rate of interest offered on government securities is competitive. Since these conditions are not met by the Indian capital market, open market operations are of minor importance as a monetary instrument though they serve as an adjunct of fiscal policy in India to some extent.3

Government securities are held mainly by the banking system and other institutions, such as government-owned insurance companies and provident funds, in compliance with statutory requirements. In a way, these holdings are a vehicle for providing priority credit; the priority sector in this case being the government and other public sector enterprises. Since government bonds bear a lower yield than that on other comparable financial assets, there is an implicit interest rate subsidy involved. It is clear that the directed credit programs tend to weaken monetary policy, apart from stunting the growth of the financial system.

When open market operations are not used as a monetary policy instrument and a subsidized interest rate regime is pervasive, the central bank relies on reserve requirements for monetary policy purposes. The reserve requirement is also the instrument available to governments for raising fiscal revenues; these aspects make its extensive use more convenient. Governments in developing countries perpetually need revenue sources for meeting their current and developmental expenditures. Fiscal authorities get round these inherent constraints on revenue by imposing reserve requirements. This is why high reserve requirements of 50 percent and more are imposed in most developing countries, especially those in Latin America. In this sense, reserve requirements constitute a tax on the banking system. There is, however, a constant conflict between two objectives of reserve requirements—that of monetary policy and of fiscal policy; experience shows that the fiscal policy objective emerges often as the winner, with an adverse impact on financial development.

Liberalization of the Financial System

What I have mentioned so far suggests that the excess of promotional policies adopted by the central banking authorities in several countries has repressed the financial system and enfeebled monetary policy instruments. For this reason, promotional policies need to be tempered by allowing the system to function in a more liberal atmosphere, unhampered by frequent and stifling interventionist policies; however, just as the excess of promotional central banking policies is undesirable, the excess of demotional policies, or financial liberalization, is also not warranted. The experience of countries with financial liberalization is not uniform nor always successful. There have been as stark failures, particularly in Latin America, as there have been impressive successes, as in Korea, Indonesia, and Malaysia. Much can be learned from these experiences by other countries who may like to replicate similar financial liberalization policies.

There are six lessons to be drawn from financial liberalization across countries. One of the most important is that price stability and, more broadly, macroeconomic stability, is the linchpin of successful liberalization, not the deregulation of interest rates per se, especially when the countries undergoing financial reforms have shallow financial markets.4 The experiences of the Philippines, Malaysia, Indonesia, South Korea, and the Southern Cone countries underscore the importance of price stability in two different ways. In the first two countries, the level of inflation was a determining factor in attaining positive interest rates. The adjustment in real interest rates lagged when inflation was declining, although interest rates were fully liberalized. The resulting high interest rates led to widespread insolvency of firms with high-gearing ratios, as in Indonesia, or to an economy on a downward slope, as in the Philippines. In South Korea, although interest rates were administered by the Government, interest rates were substantially positive and stable because of price stability and the flexibility with which nominal interest rates were adjusted according to the movement of inflation. At the other extreme, the inconsistent macroeconomic policies of the Southern Cone countries rendered their economic system unstable and vulnerable to shocks; their economies could not inhale the whiff of financial liberalization policies. The resulting adverse expectations led to unsustainable high real interest rates.

Financial liberalization, if not properly designed, may cause instability of the financial system, which in turn may magnify macroeconomic instability. In Chile, Argentina, and Uruguay, preannounced exchange rate policies were reasonably credible at the beginning of liberalization, but once the monetary consequences of financial sector instability became clear, credibility began to crumble.5 In Chile’s case, it was clear that the Government could buttress the financial position of banks by borrowing abroad, but once it reached its limit (which it did in 1981 when it began losing its foreign reserves), the Central Bank extended massive financial assistance to financial institutions and contributed to the growth in base money. As a result, the inflationary expectations, curtailment of which was the main objective of the stabilization policy, resurged. In Argentina, it is true that the fiscal deficit was an important factor, but its impact was evident when the Central Bank had to infuse a large amount of credit to bail out the financial institutions.

Second, when capital movement is completely free in an economy where the financial market is relatively small, liberalizing domestic interest rates makes them sensitive to the pressures of expectations of foreign exchange movement. This often leads to volatile and high domestic interest rates, which may significantly diverge from the longrun equilibrium level. On the other hand, if a government attempts to control domestic interest rates, it may risk massive capital flight. The best approach may be to achieve a stable macroeconomic environment that will eliminate any abrupt changes in expectations about exchange rate movement. When this is not possible, a country with a small and vulnerable financial market may choose a second-best approach of continuing some restrictions on the capital account and maintaining interest rates. For example, Korea faced major macroeconomic imbalances and political uncertainty in the early 1980s; had the Government fully liberalized the capital account and domestic interest rates then, it might have faced very high domestic interest rates, if not massive capital flight, and even more serious macroeconomic instability in the financial system. This suggests that when the domestic economy is unstable or when the depth of the domestic financial sector is inadequate, a country may maintain control over its capital account and domestic interest rates while flexibly adjusting the latter to the inflation rate and attempting to stabilize the inflation rate.

Third, financial liberalization centered on the banking system seems to have limitations. These are related to two important features of banking institutions; that is, the banking sector performs both the monetary and financial intermediation functions. The two functions do not work in the same direction, especially when macroeconomic imbalances arise. Often, the growth of liabilities and assets of the banking system is constrained by a tight monetary policy. When financial liberalization policy is pursued concurrently with stabilization policy, the intended goal of the policy—to enhance the financial intermediation role of banks—is weakened by the monetary policy directed toward containing inflation. In South Korea, the Government constrained domestic credit and controlled the growth of M2, although banks were privatized and allowed greater management autonomy and competition; however, owing to the policy of encouraging competition and innovation in the nonbanking financial institutions and securities market, growth of the financial sector was achieved through the expansion of the nonbanking financial sector. In the Philippines, the aggressive monetary policy to mop up liquidity, by issuing highyield treasury bills and central bank bills, forced high interest rates in the banking system; to avoid massive disintermediation, the banks had to match their interest rates. The growth of the banking system was also directly limited by the tight monetary policy of the Government. In Malaysia, the liquidity of the banking system, which was greatly influenced by the restrictive monetary policy, determined the level of interest rates to a large extent, and their resulting high level deterred new investment. In Indonesia, a shrinkage of liquidity credits at the beginning of the reform accentuated the rise in interest rates, which in turn led to expansion of nonperforming loans via the profit squeeze on the borrowing corporate sector.

The other feature of the banking system stems from the banks’ debt intermediation function whereby short-term fixed fee liabilities (deposits) are transformed into long-term fixed fee assets (loans). This function places banks at the risk of runs and insolvencies in the absence of appropriate government supervision and regulation. In addition, the dominance of debt intermediation in financial markets makes corporate firms (when they are highly leveraged) vulnerable to economic downturns and increases in interest rates. This has continuously called for some kind of government intervention in bank-oriented financial systems. The South Korean Government, despite its intention, maintained control over bank interest rates and intervened in credit allocation to prevent massive bankruptcies of corporate firms in the early 1980s when its economy was shaky and banks were burdened with increasing arrears. At the other extreme were the Latin American countries and the Philippines, which were involved in a massive restructuring of banks and corporate firms and experienced sharp credit and monetary expansion.

A fourth important lesson to be drawn from financial reform experiences is that excessively high positive real interest rates are as disequilibrating as are heavily repressed negative real interest rates. Experiences in the financially reformed countries have dramatized the contradiction between the need to maintain a high and positive real interest rate as a reward for savers and the imperative to lower the cost of funds to finance new investment. In the imperfect and oligopolistic money and credit markets characteristic of developing countries, a sudden dose of liberalization often leads to the overshooting of both nominal and real interest rates, unwarranted by the “fundamentals” when financial reform, especially interest rate deregulation, is undertaken amid high and fluctuating inflation rates. The resulting real interest rates often exceed the marginal return to capital, as happened in the Latin American countries, the Philippines, and Indonesia and led to increasing arrearage in the banking system. There is moral hazard when firms borrow to pay interest or simply to stave off bankruptcy rather than to invest or to finance working capital. Domestic investment tends to become hostage to high interest rates and, consequently, what is first the corporate sector’s crisis becomes a system-wide crisis. South Korea tried to cushion high interest rates by slowing implementation of reform and maintaining interest rate controls and selected credit programs; the latter were gradually phased out. Indonesia backtracked in regard to phasing out liquidity credits under which loans to certain sectors were subsidized, and Sri Lanka persisted with special credit programs even to the present.

Fifth, financial liberalization assumes that the fully liberalized financial system will function optimally. It should be recognized, however, that in economies that have a long history of financial repression, the participants, be they bank managers, borrowers, lenders, or public servants, are not trained in new ways of dealing with a liberal and competitive system. For instance, it was suggested that in Chile’s case some of the blame for a disastrous financial crisis resided “in little experience existing in the country in the management of a freer financial system.”6 The concept of “an associative heuristic” implies that the individual’s caution is pronounced in the immediate aftermath of a disaster and tends to diminish as time passes and memory of disaster fades. Inability to asses risk and insufficient capacity to cope with adverse situations prevented the liberalization program from succeeding to the desired extent in Chile and other Latin American countries. Had these policies been unleashed gradually, those at the helm of the financial institutions (and others associated with them in some capacity) would have adjusted and become familiar with the new tasks over time. In Indonesia, training of public servants and financial managers before full and comprehensive liberalization has improved results.

Closely related to the above is the need to set up a well-planned financial infrastructure with provision for information flow, legal and accounting systems, and an appropriate regulatory system to monitor it carefully and continuously. Otherwise, financial liberalization will fail in its main purpose: to orient the financial system toward greater efficiency, competition, and effectiveness. For banks, it is not always possible to distinguish a necessary control for monetary stability purposes from a supernumerary regulation affecting credit allocation, but it is imperative that essential regulation be strictly enforced because of the oligopolistic nature of the banking system in several developing countries. It is now generally acknowledged that there is a widespread concentration of banking in developing countries. What is more, in some countries like Chile, the bank-holding company structure is more prominent and adversely affects competition, in opposition to the avowed objective of financial liberalization and deregulation. In the presence of such oligopolistic financial and industrial structures, freedom in transactions is often harnessed to increase the market share by price war. For instance, bank-holding companies increase interest rates on deposits to make inroads in the market for funds; this in turn results in higher loan rates. Since loans are provided to the interlocking firms in which banks have close interest, high interest rates do not affect credit demand. This encourages banks to be even more imprudent because they know that the government cannot allow them to go bankrupt without jeopardizing the entire monetary system. There is thus a moral hazard that provides incentive to banks to lend at very high interest rates in order to reduce liquidity strains. As McKinnon puts it, “the bank is beneficiary of an unfair bet against the government; it gets to keep extraordinary profits without having to pay the full social costs of unusually large losses from risky lending.”7 This underscores the need to strengthen the supervisory apparatus in liberalizing countries so that banks are disciplined in mobilizing deposit and lending operations.

Sixth, the financial reform experience in different types of economies raises a question about how authorities can remove the repressive characteristics of intervention without the disequilibrating shocks that emanate from the complete, once-for-all type of financial reforms. A pragmatic solution may be to evolve a certain set of market-oriented indicators based on fuller information from domestic and foreign sources while taking steps to build the financial infrastructure, reducing the monopoly element in the financial and industrial sectors, etc. In this respect, a great deal can be learned from the Korean and Japanese strategies of financial reform. It also should be recognized that liberalization, even in developed countries, has not brought unmixed blessings. For one thing, after financial liberalization real interest rates in those countries have reached very high levels by historical standards and have afflicted their economies and those of the borrowing developing countries. For another, interest rates have been most volatile in recent years. As a result, interest rate risks have been transmitted from financial intermediaries to borrowers to a greater extent than before. The implication is that a gradual process of liberalization in developing countries is preferable to the sudden dismantling of all regulations recognized to be repressive.

Conclusion

We can generalize the role of central banks in financial sector development, thus: central banks can and should promote, by every possible means, the development of the financial system by answering the variegated needs of savers and investors. But in doing so, they should not exceed the limits of intervention dictated by prudence, efficiency, and effectiveness. If, perchance, limits are transgressed, the central bank should not swing to the other extreme of total withdrawal from the concerns for financial system development. What should be remembered is that “Nothing fails like excess.”

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*

The author is a Consultant at the World Bank.

4

Cho and Khatkhate (1989).

5

Ibid.

6

Cho and Khatkhate (1989), p. 104.

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