The Conundrum of Monetary Policy and Prudential Regulations in Addressing Banking Crises: Selected International Experiences with a Potential availing for Iraq
Submitted to the Council of Faculty of Management and Economic Karbala University in Partial Requirements for the degree of Doctor Philosophy in Economics
A Dissertation By
Ghusoun K. Obaid Aljanabi
Supervised by
Prof. Talib Hussein Fares Al-Kuraiti
Abstract
The research addresses the issue of aligning monetary policy with prudential systems in light of economic literature and international experiences (Egypt and Turkey), and how these can be utilized in Iraq. This alignment is one of the key challenges to ensure the capability of financial systems to achieve financial stability and to face banking crises in a way that does not conflict with the application of monetary policy tools. This can be done through coordination mechanisms and resolving conflicts in the application of the mentioned policies.
The research hypothesis focused on the role of the alignment between monetary policy and prudential systems in addressing banking crises and the effectiveness of the economy’s response to these crises. Additionally, international experiences vary in the level of alignment between monetary policy and prudential systems in addressing banking crises, depending on the development of financial systems and the availability of theoretical and objective requirements to achieve the main goal of prudential systems, which is financial stability.
The importance of the research lies in providing a clear understanding of the relationship between monetary policy and prudential systems in addressing banking crises through the study of selected international experiences. The research also contributes to enriching knowledge on how to achieve alignment between these policies, given the recent application of prudential systems compared to monetary policy. The implementation of prudential systems can influence economic activity and growth through their role in reducing systemic risks, preventing banking shocks, and ensuring the safety and stability of the financial system. This enables decision-makers in Iraq to make more effective decisions to enhance financial and economic stability, thereby reducing financial costs in case the financial system faces shocks and fluctuations. Additionally, the research helps in deriving valuable lessons from international experiences to improve the ability to predict banking crises and develop effective strategies to deal with them in the context of Iraq, enhancing the resilience and stability of the country’s financial and economic system.
The objectives of the research were to understand the relationship between monetary policy and prudential systems in addressing banking crises by reviewing specific international experiences and providing applicable recommendations in the Iraqi economic context. The aim was to present a comprehensive view of the application of prudential systems and their role in enhancing financial and economic stability, contributing to the development of a more resilient and stable financial system in Iraq, as well as measuring and analyzing the relationship between monetary policy and prudential systems during banking crises.
The research concluded with several findings, the most notable being that the results of econometric analysis confirmed the research hypothesis. The results varied in the short term in achieving alignment between the adopted monetary policy and prudential systems to address banking crises, as evidenced by the differing direction of the relationship in the long term regarding the impact of the total credit ratio to GDP on overall credit between Egypt and Turkey.
The primary recommendation of the research is that Iraq should benefit from international experiences in building flexible prudential systems to align with monetary policy goals by reforming the financial system to enhance the alignment indicators between monetary policy and prudential systems.
