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Do banking crises enhance efficiency ? A case study of 1994 Turkish and 1997 Indonesian crises

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  • Julien Reynaud

    ()
    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris 1 - Panthéon-Sorbonne)

  • Rofikoh Rokhim

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris 1 - Panthéon-Sorbonne)

Abstract

Drawing together the concepts of inefficiency and banking crisis is directly inspired by business cycles theory where a crisis is the turning point from which the market/economy is recovering. If inefficiency plays a role in the occurrence of banking crisis, the post-crisis period should be the time for recovering efficiency. Moreover, traditional banking theory predicts that the crisis should eliminate bad banks from the system, leading to a more efficient banking sector. We tested this hypothesis on the 1994 Turkish and 1997 Indonesian banking crises using stochastic cost frontier analysis. Our results show an interesting pattern, opposed to what theory predicts : we find that inefficiency increase after the crises in both banking sectors.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00193306.

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Date of creation: Jan 2005
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Handle: RePEc:hal:cesptp:halshs-00193306

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Keywords: Banking crisis; efficiency; Indonesia; Turkey.;

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  1. Pastor, JoseManuel & Perez, Francisco & Quesada, Javier, 1997. "Efficiency analysis in banking firms: An international comparison," European Journal of Operational Research, Elsevier, vol. 98(2), pages 395-407, April.
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