TÜRK EKONOMİSİ - Deneme Sınavı - 4

“The Banking Regulation and Supervision Agency carries out the functions of regulation, supervision and enforcement within the aim of providing reliability and stability in financial markets, ensuring the efficient running of the credit system, protecting rights and interests of savers and developing financial sector considers strategic planning as one of the main instruments to fulfill its duties effectively.” (BRSA, 2019).

BRSA, The Banking Regulation And Supervision Agency, https://www.bddk.org.tr/aboutus/about- agency/16, May 2019.

Another significant institution related to regulations is the Capital Markets Board of Turkey (CMBT). “It aims to ensure efficient and extensive involvement of the public to economic development through transforming investments into securities and protect the rights and benefits of investors by promoting the principles of fairness, transparency and stability in the capital market.” (CMBT, 2019).

CMBT, (2019). The Capital Markets Board Of Turkey, http://www.cmb.gov.tr/sayfa/index/0/0, 26 September 2019.

Thanks to the banking and financial reforms that were implemented by the government in the 2000s, the Turkish finance and banking sectors have become more enduring in recent years.

Turkey follows the Basel III criteria and puts more weight on macro and micro- prudential legislation to be conducted within the finance and banking industry.

Some goals and objectives of the Capital Markets Board of Turkey are listed as follows:

CMBT, (2019). The Capital Markets Board Of Turkey, http://www.cmb.gov.tr/sayfa/index/0/0, 26 September 2019

A financial crisis is often associated with one or more of the following phenomena (Claessens and Kose, 2013, 4-5):
• Substantial changes in credit volume and asset prices.
• Severe disruptions in financial intermediation and the supply of external financing to various actors in the economy.
• Large scale balance sheet problems (of firms, households, financial intermediaries, and sovereigns).
• Large scale government support (in the form of liquidity support and recapitalization).

Financial crises take place in various ways, and there are four different financial crisis definitions depending on the source to distinguish them. These are currency crisis, banking crisis, systemic financial crises, and sovereign debt crisis.

A currency crisis involves a speculative attack on the currency resulting in a devaluation (or sharp depreciation), or forcing the authorities to defend the currency by expending large amount of international reserves, or sharply raising interest rates, or imposing capital controls (Claessens and Kose, 2013, 12).

The sovereign debt crisis is the government’s failure to pay internal and external debts belonging to the public and private sectors.

The banking crisis may arise from the institutional structures of banks, namely their high leverage balance sheets, macroeconomic shocks, risky banking transactions, intense competition, poor management, institutional weakness and dependence on short-term foreign resources and as well as from bank runs (also called as a run at the bank). When the depositors believe that the bank is bankrupt, they run to the bank and withdraw their cash from deposit accounts. Bank run creates a self-fulfilling prophecy that speeds up the bank bankrupt, so the banking crisis occurs as this spreads to other banks (Claessens and Kose, 2013, 18; Yay, Yay and Yılmaz, 2001, 21).

In its most general usage, the term systemic crisis describes a shock to the financial system that impairs crucial functions of the system, such as asset valuation, credit allocation, and payments.

Systemic financial crises are the collapse of financial institutions, which have great and devastating effects on the real economy and prevent the efficient function of the markets (Yay, Yay and Yılmaz, 2001, 21).

The causes of systemic financial crises can be listed as follows: irrational piling-on of debt; moral hazard induced by mispriced government-provided deposit insurance; complex relationships among counterparties; an unwillingness of dealers to trade; a failure of the Central Bank to provide liquidity as needed; unpredictable adverse shocks that come from outside the financial sector; and bank runs” (Marshall, 1998, 13).

Depending on the current account deficit and the level of debt, sovereign debt crises reduce the economic growth rate and employment rate while it increases the interest rate, exchange rate, and inflation rate.

The First Generation of Crisis Models largely motivated by the collapse in the price of gold, an important nominal anchor before the floating of exchange rates in the 1970s, was often applied to currency devaluations in Latin America and other developing countries (Claessens and Kose, 2013, 12).