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

Listed author(s):
  • Julien Reynaud

    ()

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Rofikoh Rokhim

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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
Publication status: Published in Cahiers de la Maison des Sciences Economiques 2005.07 - ISSN : 1624-0340. 2005
Handle: RePEc:hal:cesptp:halshs-00193306
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00193306
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  1. Haizhou Huang & Chenggang Xu, 1999. "Financial Institutions, Financial Contagion, and Financial Crises," CID Working Papers 21, Center for International Development at Harvard University.
  2. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
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  4. Allen N. Berger & David B. Humphrey, 1990. "The dominance of inefficiencies over scale and product mix economies in banking," Finance and Economics Discussion Series 107, Board of Governors of the Federal Reserve System (U.S.).
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  11. Andre Cartapanis, 2004. "Le declenchement des crises de change : qu'avons-nous appris depuis dix ans ?," Economie Internationale, CEPII research center, issue 97, pages 5-48.
  12. 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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  15. J.W.B. Bos & H. Schmiedel, 2003. "Comparing Efficiency in European Banking: a Meta Frontier Approach," Research Series Supervision (discontinued) 57, Netherlands Central Bank, Directorate Supervision.
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