From Financial Liberalization to Banking Failure: Starting on the Wrong Foot?
AbstractIn this paper we attempt to identify the characteristics of banks that are most likely to be at the origin of a banking crisis following a financial liberalization (FL) process. We do this analysis in response to the observed fact that FL processes arse often followed by banking crisis that cost taxpayers large amounts of resources in rescue operations. To accomplish this objective we identify a sample of ''failed'' and ''healthy'' banks following a FL and then compare their financial data at the onset of FL. We also attempt to identify to what extent the quality of the loan portfolio and the management and risk- taking practices of banks affect the outcome. The results are surprisingly robust and they mean that it may be possible to identify with an anticipation of at least 4 years the banks that could be responsible for an eventual banking crisis! Further, both quality of loans and management and risk-taking practices play a role. The results suggest that banks that are more conservative and thus those that are less likely to incur in moral hazard, or are more capable of absorbing important macro shocks given their capitalization, are the ones that are more likely to remain solvent. The study is based on a sample of 82 banks from Greece, Indonesia, Korea, Malaysia, Mexico, Thailand and Taiwan.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 9706005.
Length: 22 pages
Date of creation: 18 Jun 1997
Date of revision:
Note: Type of Document - Tex/; prepared on IBM PC - ; to print on HP/PostScript/; pages: 22 ; figures: included/. Comments are wellcome.
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Financial liberalization; Deregulation; Commercial banking; Systemic risk; Banking crises; Bank failure;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-10-02 (All new papers)
- NEP-FMK-1998-10-08 (Financial Markets)
- NEP-IFN-1998-10-02 (International Finance)
- NEP-PKE-1998-10-05 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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