Bank regulation in dollarized economies: The case of Turkey

© 2013 by the authors; licensee MDPI, Basel, Switzerland.Regulators in emerging markets are increasingly curtailing the practice of foreign currency lending. In such a move Turkish regulatory authorities banned foreign currency lending to households in 2009. This paper examines the evolution of financial dollarization in Turkey in the 2002–2009 period by looking the currency composition of loans and deposits in the banking system and the macroeconomic developments. We find that the Turkish banking system was unhedged against currency fluctuations and the regulators acted preemptively in banning the practice.