Financial Development and Financial Fragility: Two Sides of the Same Coin?

Svetlana ANDRIANOVA Professeur associé d'économie, Université de Leicester
Panicos O. DEMETRIADES Professeur d'économie financière, Université de Leicester ; ancien gouverneur, Banque centrale de Chypre

The paper puts forward three inter-related reasons that explain the recent breakdown of the (bank-based) finance-growth nexus, comprising the use (or abuse) of the relationship by policy-makers, capture by ruling elites and institutional constraints. It concludes that in order to restore the ability of banks to promote growth, the influence of ruling elites on rule of law, financial regulation and supervision needs to be minimized.

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