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An Investigation on Causes of Banking Crises from Asymmetric Knowledge Framework: A Microeconomic Approach

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  • Tuncel, Cem Okan

    (Uludag University)

Abstract

The main aim of this paper is to investigate on banking crises which stemming from asymmetric knowledge problems in financial system. Asymmetric information and its related problems have a great influence on the functioning of financial markets. Finance literature underlines that banking firms are special intermediaries due to systemic risk concerns. In post liberalization interest rate tends to rise and moral hazard and adverse selection problem exist at firm level in banking business because of lack of adequate supervision. As is typically argued, unless liberalization is accompanied by sufficient prudential supervision of the banking sector, it will result in excessive risk taking by financial intermediaries and a subsequent crisis. In this paper excessive risk taking behavior of banking firms analyze with using a theoretical framework of New Keynesian that the “credit rationing model” offers, and moral hazard, adverse selections problems causing bank failure are discussed.

Suggested Citation

  • Tuncel, Cem Okan, 2013. "An Investigation on Causes of Banking Crises from Asymmetric Knowledge Framework: A Microeconomic Approach," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 4(1), pages 1-77, January.
    • Handle: RePEc:ris:buecrj:0111
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    More about this item

    Keywords

    Banking Crises; Asymmetric Knowledge; Excessive Risk Taking; Credit Rationing; Banking Firm;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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