This paper argues that the operation of the financial sector as a whole will not be as effective if market discipline is relied upon as the only tool of financial regulation. Before enacting any incentive mechanisms, there must be adequate built-in measures to prevent the exploitation of...

Examines the extent to which different settlement systems affect the nature and potential vulnerability of the financial system to systemic risks, and considers whether externalities can be reduced if individual institutions fully internalise the costs of their actions.

During the last two decades many countries have liberalised their financial markets. They have attempted to eliminate government intervention in setting interest rate ceilings, erecting entry barriers, interfering in credit allocation decisions, and have begun to privatise their financial...