Does deregulation lead to banking sector instability?

After the financial crisis of 2008, governments worldwide are re-assessing their approach to bank regulation. Professors Subramanian and Vaidya Nathan examine how dismantling of regulations affects banking sector stability. Deregulation of entry in a bubble can lead to banking sector instability, but when accompanied by better screening for lending and general financial health of firms, it may also lead to greater stability.

K. Vaidya Nathan
Faculty, ISB and Visiting Faculty, University of Connecticut

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