"7 aspiration to catch the attention of the global market . The major step towards this move is theformation of the Dubai International Financial Corporation (DIFC), based on the foreignoffshore model. This bank is not controlled or restricted by the financial institutions. The DIFCbank is a financial free zone bank where the foreign bank may enjoy 100% ownership withimplication of no restrictions. The formation of this bank can be observed as the first step of the8 UAE government towards the complete liberalization of the banking sector in this region.One of the key objectives of UAE?s decision to accede to the WTO has been to achieveliberalization of banking services for its member countries. The GATS regulates and liberalizestrade in the financial sector by generating investment and allowing foreign investors to invest inthe country. With UAE becoming the member of the WTO on 10th April 1996, the country?sambition to pursue its decision to promote economic openness has seen reality, and has also ledto the stability within the financial sector in the past decade.The reforms bought in by liberalization no doubt have changes the functionality of the banks.With an overall of stronger and stricter regulations and uncontrolled competition is expected tohelp in developing the overall performance of the banking sector and also work to the advantageof the bank customers and borrowers and also to the overall lead of allocation efficiency of thesystem. However, these reforms have still a long way to go because a liberal economy with freeflow of capital places greater demands on the banking sector, pressurize the bank margins andalso the need for a much stronger credit appraisal in comparison with the requirement in the past.The liberalized economy may also increase greater volatility in price, interest and exchange ratemovements. Thus, this process as analyzed by different authors in the next section will bringgreater development in the financial economy of the nation but in the same time will also bring7Same as note 78Same as note 6 in lot of negative impacts that needs to be regularized properly such that the economy enjoys the9 fruits of liberalization and perform well.Before beginning the analysis of different authors on liberalization, banking sector of the UAEand the impact of liberalization it is essential to understand if liberalization is an advantage or adisadvantage to the financial sector of a country. Many authors have discussed in favor ofliberalization and its economic impacts but a few have also observed risks associated withliberalization. Introducing the concept of liberalization has unforeseen positive effects such asfaster economic growth, increased competition urging the local bank to perform at par with theforeign banks and finally, building a local bank supervisory and legal framework and developtransparency. However, these unforeseen positive effects go hand in hand with the negativeeffects such as undercapitalization of banks, deterioration in the loan portfolio of the banks, andincrease in the overhead transitional costs in association with the possible transformation of10 certain local banks from privately-owned to publicly-held banks. Thus, it can be noted that inaddition to positive implications of liberalization it does have negative impact. The aim of thedissertation is to understand the impact of liberalization of the banking sector of the UAE andalso the FSAP assessing the financial stability of the UAE financial sector with the introductionof liberalization. The FSAP analysis and the statistical findings will be discussed in depth in thenext section. However, the main findings include, the banking sector enabling rapid creditexpansion to households, corporations, public and quasi-public organizations; the favorableenvironment of the liberalized banking sector has helped authorities to open up the bankingsector to grater competitions, profitability and improve its services to the customers; and the9Joshi Deepali Pant, “Poverty and Sustainable Development,” Chapter – 20, “Banking Sector Reforms,” Economic Development, 200610Dr. Rettab Belaid, Fakhr Tarek Abu, and Dr. Istaitieh Abdulaziz, “Implications of FTA on UAE Banks: An Explorative Assessment,” PolicyStudy, Data Management and Research Department, 2006 resilient nature of the banking sector to a variety of shocks such as the decline in the market11 prices in 2006, among other matters.LITERARY REVIEW AND ANALYSIS ON LIBERALIZATIONFor further effective analysis of a dissertation, literary reviews are included that effectively grabthe interest of the reader in providing an understanding in detail of the concept of liberalizationof banking sector in the UAE and its accession to the WTO principles. The major aim of thedissertation is not to discuss in detail the concept of liberalization or its pros and cons, asnumerous researchers have secured this part of the subject. Instead, it is concerned withunderstanding the scope of liberalization and its major impact on the federation of seven smallAmerican Gulf emirates, the United Arab Emirates (UAE). The dissertation aims atunderstanding the service sector in the UAE before and after liberalization. Further, it criticallyanalyses the legal framework of the UAE banking sector and the creation of the Central Bankand its duty to regularize the banking sector in the UAE. Further, the dissertation aims indiscussing the principles of the WTOs and the principle obligations of the GATS. It also furtheranalyses the GATS obligations and disciples from the UAE banking sector perspective.The dissertation also aims at analyzing the legal framework of the nature restrictions imposed onthe service sector in the UAE in relation to the principle of market access and national treatmentand further discuss these restrictions through different statistical information.The objective of the dissertation is to provide reader an idea on the concept of liberalization andWTO principles and GATS related to the banking sector. Further, the dissertation also aims indiscussing in detail nature of restrictions imposed on the service sector in relation to the principle11“United Arab Emirates: Financial System Stability Assessment,” IMF Country Report No. 07/357, 2007 of specific commitment under the GATS principles. Restrictions are considered to bediscriminatory measures implemented between the national and foreign banks. The presence ofdiscriminatory measures between the national and foreign banks is due to the existence ofcommercial and Islamic banks in the UAE?s banking sector. In addition to these aims and objectives this section also discusses the analysis of liberalizationin the UAE and also the GATS principles through the works of a variety of authors. The current dissertation analyzes the UAE banking sector and its readiness to be part of theglobal financing sector. The important contributions include the works Hashmi Anaam’s whostates in his article analysis of the United Arab Emirates banking sector, noted that it can beunderstood that with effective improvisation of liberalization and the global reforms bankingsector in the UAE will become well managed. In the study it can be understood that the currentbanking sector in the UAE is well managed by the UAE Central Bank which is one of thepositive factors for the growth of the country?s economy and also growth of the country?sglobalization efforts, because of which the banking sector in the UAE has geared up for theglobal competition. In this study, the author has analyzed the banking sector in the UAE beforeand after liberalization. This study will become helpful in the further sections of our dissertationas the statistical analysis will help the readers in understanding how effectively the UAE bankingsector has embraced liberalization and has taken effective measures to take up the globalcompetition. In addition, to the work of Hashmi Anaam, this section will provide readers brief12 understanding on views of different authors such as Rao (2002) who in his research of the 35domestic and foreign banks working in the UAE during 1998 and 2000, examined the costefficiency, scale and scope measures and the growth rate of cost productivity of these banks and12Rao, Ananth, “Estimation of Efficiency, Scale & Scope and Productivity Measures of UAE Banks,” European Conference of FinancialManagement Association, Copenhagen, June 2002.noted that smaller banks have shown a greater improvement in their scale of economics andgreater ability to managing their portfolio in comparison to the larger banks.Secondly, a literary review that helps in effective flow of the dissertation is the study of LeeJong-Kun, while analyzing the impact of financial liberalization and entry of foreign banks intothe banking sector of the nation stated that the liberalization of financial system and entry offoreign banks has increased competition in the banking sector which in turn has increasedsoundness of the domestic banks as well as the credit growth associated with the financial sectordevelopment. The analysis made by the author in this regards will help readers in understandinghow liberalization of banking sector has helped in increasing financial depth which has in turnincreased the domestic credit to private sector rather than public sector. This empirical study ofthe author also helps us in understanding an efficient financial market underpinned by asystematic, good financial system and well-balanced development of the financial sector will13 result in a better banking efficiency.Prior studies have made it very clear that an efficient and growing banking sector is veryessential for predicting the future economic development of the nation. El-Kuwaiz (1995) and De14 Gregorio and Guidotti (1995) , in their study have also stated that the banking reforms are co- related strongly with the economic growth of the countries. In addition, to the research work ofthese authors, the dissertation will highlight the impact of liberalization of the banking sector inthe UAE in the light of enacting the WTO principles in further sections of this research analysis.According, to the studies of above mentioned authors it can be concluded that for a structured13Lee Jong-Kun, “Financial Liberalization and Foreign Bank Entry in MENA,” Financial Sector Strategy and Policy World Bank, 2002;http://web.worldbank.org/archive/website01038/WEB/IMAGES/MENA_FIN.PDF 14De Gregorio, Jose, and Pablo Guidotti “Financial Development and Economic Growth,” World Development 23.3 (1995): 433-48. "