Question

What can emerging market countries do to strengthen prudential regulation and supervision of their banking systems? How might these steps help avoid future financial crises?

Short answer

Emerging market countries can follow examples set by financially stable countries, and establish court systems that regulate financial market players. From an economics standpoint, the goal would be to allow enough risk to stimulate growth and investment and limit it when the risk has too high of a chance of destabilizing the country.

Step-by-step solution

Concept 

Emerging market countries can follow examples set by financially stable countries, and establish court systems that regulate financial market players. From an economics standpoint, the goal would be to allow enough risk to stimulate growth and investment and limit it when the risk has too high of a chance of destabilizing the country.
1. Effective risk measurements and monitering

2. Policies that limit significant risk
3. Internal controls to prevent fraud

4. Make public balance sheets

5. Allow the free market to pressure in a positive way (enable consumers choice)

6. Limit foreign currency that may cause exchange rate debt issues

7. Slow and controlled, allow free-market banking structures to be introduced