Financial Restraint: Toward a New Paradigm
Financial Restraint: Toward a New Paradigm
This chapter introduces the new concept of financial restraint: a set of financial policies that create rent opportunities in the banking and production sectors. It is argued that these rents may curtail a bank’s moral hazard behaviour and enhance incentives for monitoring and savings mobilization. Consequently, more efficient credit allocation and financial deepening are induced under financial restraint than under eitherlaissez-faireor financial repression.
Keywords: financial policy, banking sector, production sector, rents, credit allocation
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