The political economy of banking sector regulation: the case of post-1980 Turkey

Abstract

Banking sector is without a doubt one of the most regulated industries in the world, since banks had a central role in financial mediation for centuries. State has regulated the banking sector in order to protect depositors’ money; to ensure the safety of banks; and thus to safeguard the whole economy. However, the methods and modes of banking sector regulation have changed significantly in the 20th century. After World War II, state regulated the banking sector through the involvement of public banks and anti-competition regulatory rules. However, after the worldwide economic crisis in the 1970s, the mode of banking sector regulation has changed toward ‘statutory regulation implemented by independent regulatory agencies’: interest rates and foreign currency regimes have been deregulated; public banks have been privatized; autonomous bureaucratic agencies for bank regulation have been established; and competition in the banking sector has increased. As a result, state’s degree of intervention in the banking sector has diminished. This thesis addresses this change in the mode of banking sector regulation in the case of post- 1980 Turkey, first by narrating the story of change in conjunction with international developments, then by analyzing the political economy factors contributing to change. An examination of the evolution of banking sector regulation comes to the conclusion that mode of banking sector regulation in Turkey changed from state administration of the banking sector, toward statutory regulation implemented by independent regulatory agencies; and international institutions together with domestic political factors engendered the evolution of the mode of banking sector regulation.