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What Is the Impact of the Global Financial Crisis on the Banking System in East Asia?

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  • Pomerleano, Michael

    (Asian Development Bank Institute)

Abstract

The paper analyzes the risks in the banking systems in East Asia using the standard supervisory framework, which assesses capital adequacy, asset quality, management, earnings, and liquidity (CAMEL), and finds that banking systems in the region are sound, but that the short-term outlook is negative. Second, it reviews the measures introduced in Asian countries to support their banking systems. The main bank support measures—direct capital support, removal and guarantees of bad assets, direct liquidity support, and guarantees for banks' existing or newly issued obligations—might be necessary to ensure stability, but they need to be handled carefully to prevent long-term distortions. It remains to be seen whether Asian policymakers will manage skillfully the lifting of bank support measures. Third, the paper conducts stress tests of the banking systems. The stress tests indicate that the largest banking systems in East Asia have a total of almost US$1.2 trillion in Tier 1 capital and a possible shortfall of US$758 billion. Fourth, it assesses the implications for liquidity of the increase in international banking flows and finds that the banking system in the Republic of Korea appears vulnerable to a reversal of capital flows. Fifth, the paper explores the implications of the crisis for credit formation, assessing whether nonbank financial institutions in the region have the capacity to provide sufficient liquidity. The author concludes that they do not. The paper ends with a brief assessment of the impact of the crisis on the corporate sector, concluding that the effects of the crisis are likely to be significant but manageable.

Suggested Citation

  • Pomerleano, Michael, 2009. "What Is the Impact of the Global Financial Crisis on the Banking System in East Asia?," ADBI Working Papers 146, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0146
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    File URL: http://www.adbi.org/working-paper/2009/08/19/3269.gfc.impact.banking.system.east.asia/
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    2. Michael Pomerleano, 2007. "Corporate financial restructuring in Asia: implications for financial stability," BIS Quarterly Review, Bank for International Settlements, September.
    3. International Monetary Fund, 2009. "Thailand; Financial System Stability Assessment," IMF Staff Country Reports 09/147, International Monetary Fund.
    4. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Chan, Sok-Gee & Koh, Eric H.Y. & Zainir, Fauzi & Yong, Chen-Chen, 2015. "Market structure, institutional framework and bank efficiency in ASEAN 5," Journal of Economics and Business, Elsevier, vol. 82(C), pages 84-112.
    2. Eichengreen, Barry, 2009. "The financial crisis and global policy reforms," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 299-334.
    3. Baaeth Atallah Dalaien, 2016. "Impact of Global Financial Crisis on Banking Sector of India and Jordan," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(1), pages 79-95, March.
    4. Goldstein, Morris & Xie, Daniel, 2009. "The impact of the financial crisis on emerging Asia," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 27-80.
    5. Jikon Lai & John Ravenhill, 2012. "Asia’s multi-level response to the global financial crisis," Asia Europe Journal, Springer, vol. 9(2), pages 141-157, March.

    More about this item

    Keywords

    east asian bank capital; global financial crisis; government bank support policies;

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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