Resumen
The adverse macroeconomic consequences of financial crises have heightened research interests in their causes. However, little is known about the role of political influence as a cause of financial crises in small developing countries. This research explores the role of governance as one of the causes of failures in nine of Liberias twelve commercial banks during the financial crises during the period 1986 to 1999. In particular, this paper explores how the government used appointments primarily based on kinship to influence the banking sector and render the National Bank of Liberia ineffective in implementing its regulatory powers. The research found that regulatory standards, weakened by nepotism, led to corruption and mismanagement in the banking sector. In addition, through the governments political influence over the National Bank of Liberia, it was able to finance unsustainable fiscal deficits by borrowing from commercial banks and the National Bank of Liberia, culminating in severe financial crises.