ABSTRACT
Chile experienced a deep economic and financial crisis during the early 1980s. These crises had a significant adverse impact on the Chilean economy. In reaction to the crisis, the Chilean government introduced a series of reforms to regain the dynamic process of economic growth before the crisis set in. They recognised that the policy failures made with respect to the liberalisation programme of the 1970s were at least partly responsible for the economic downturn. This especially referred to the exchange rate policies and the financial liberalisation programme. 2 With respect to the latter the government undertook several measures to enhance the process of financial intermediation during the early 1980s to improve resource mobilisation, the efficiency of investment and, ultimately, also economic growth. Important elements were the re-regulations of the banking sector, which aimed at contributing to increased financial stability and to reducing market imperfec tions based on monitoring and screening problems and asymmetric informa tion. The process of the strengthening of the banking system culminated in the presentation of the new banking law in 1986, which was directed towards improving the framework of prudential regulation. The new banking law was introduced as a reaction to the adverse experiences with weak regulation during the 1970s and early 1980s.
