ABSTRACT
This chapter aims to develop a theoretical framework which incorporates the banking system to examine the impacts of capital controls to the economy and the effectiveness of capital controls, especially the ability of controls to prevent/to increase banking crises. The concerns of financial crises contagious through the openness to capital flows have led more and more countries to implement capital controls. Since capital controls aim to control capital flows, it is important to understand what determines capital flows. Based on the findings of Yin-Wong and Eng, Daekeun Park and Jon Frost and Ruben van Tilburg, it seems reasonable to manage capital flows to a certain degree to reduce the negative effects and, if possible, to prevent banking crises. In terms of the types of flows, the controls can be implemented on bond flows, credit flows or debt flows. In terms of forms, the controls can be in the form of prudential and/or taxes on financial transactions.
