Many LDCs have implemented reforms to strengthen the prudential regulation and supervision of their financial systems. This article examines the progress made by LDCs in implementing reforms, analyses the weaknesses in their prudential systems and discusses policy options for further reform. While considerable improvements have been achieved, the occurrence of banking crises during the 1990s indicates that many countries have yet to build robust prudential systems which can protect their banking systems from systemic crises. The weaknesses include loopholes in the prudential regulations, shortages of skilled supervisors, and regulatory forbearance. Furthermore, there are difficulties in applying the developed country model of regulation, which relies heavily on accurate financial information, highly skilled technicians and an impartial bureaucracy, in an environment characterised by weak accounting and legal frameworks, acute shortages of skilled personnel and pervasive political interference in public administration. Options for further reform include higher capital adequacy standards, explicit rules covering intervention policy in distressed banks, restraints on competition in banking markets and greater use of the market for monitoring banks.Developing countries, Financial regulation, Banking, Banking systems, Bank regulation, Capital adequacy, Basle Capital Accord, Policy options for reform,

Most of the monetary policy frameworks which use a domestic anchor for monetary policy in sub-Saharan Africa (SSA) employ quantitative money targets. Although these frameworks proved useful in reducing inflation in SSA, they are not well suited to the discretionary fine tuning of monetary policy. Monetary policy frameworks should be reformed in the post-crisis period, especially in the 'frontier markets' of SSA, where the need for activist demand management will grow in line with economic development and the integration of domestic financial sectors into global markets. Reforms should include adopting a broader set of policy objectives in addition to inflation, replacing broad money as the intermediate target with a more sophisticated set of indicators and forecasts and reform of the operating target. In essence, central banks should introduce a form of inflation targeting lite. This should be complemented by measures to strengthen the transmission mechanism of monetary policy.

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