Financial Crises and Banking Deregulation: the Case of Tunisia

The aim of this paper is to determine banking deregulation level as a function of the variations of the internal and external fundamentals of the economy. Variations of these variables constitute an indicator of the internal and external vulnerability of the Tunisian economy. At a particular level, this vulnerability may indicate the start or the reinforcement of a financial crisis. Following this line of thinking, we propose a serial/ordered multinomial logit model that links qualitative deregulation variables to variations of several economic variables. The main results show that starting from a particular critical threshold the variations of these internal and external fundamentals indicate a triggering of a financial crisis and subsequently induce a significant intervention from the part of monetary authorities through tightening the level of control and then through a severe deregulation. However, if these variations do not exceed the confidence level, this leads the central bank to follow a progressive deregulation process.