Publication

This paper identifies two alternative forms of prudential financial regulation in developing countries. The first set is formed by regulations that directly control financial aggregates such as liquidity expansion and credit growth. The second set works by providing incentives to financial institutions to avoid excessive risk-taking activities. The author claims, that the second set of regulation can go a long way in helping developing countries achieving their goals. The paper further advances suggestions for the sequencing of implementation of these regulations for different groups of countries.