Did Financial Liberalization Lead to Bank Fragility? Evidence from Tunisia

The aim of this study is to investigate the performance of the Tunisian banking sector following the liberalization of its financial sector. To this end, we collected annual frequency data from nine banks for the period 1980-2009. By using Seemingly Unrelated Regression (SUR), our estimations show that financial liberalization negatively affected the profitability of Tunisian banks and increased the degree of credit risk. However, empirical results reveal that financial liberalization significantly increased the liquidity of banks due to liberalization of deposit interest rates