Financial Policies and the prevention of Financial Crises in Emerging Market Countries

This paper outlines a set of financial policies that can help make financial crises less likely in emerging market countries. To justify these policies, the paper first explains what a financial crisis is, the factors that promote a financial crisis and the dynamics of a financial crisis. It then examines twelve basic areas of financial policies to prevent financial crises: 1) prudential supervision, 2) accounting and disclosure requirements, 3) legal and judicial systems, 4) market based discipline, 5) entry of foreign banks, 6) capital controls, 7) Reduction of the role of state owned financial institutions, 8) restrictions on foreign denominated debt, 9) elimination of too big to fail in the corporate sector, 10) sequencing financial liberalization, 11) monetary policy and price stability, 12) exchange rate regimes and foreign exchange reserves.