Financial intermediary distress in the Republic of Korea - Small is beautiful?
Taking the Korean experience as a laboratory experiment in systemic financial crises, the authors analyze distress in individual institutions among two groups of financial intermediaries. They pool together a group of large financial intermediaries (commercial banks, merchant banking corporations) and another group of tiny mutual savings and finance companies. Both the too-big-to-fail doctrine and the credit channel approach suggest that the probability of distress would be greater for small intermediaries. But the authors find that proportionately fewer small intermediaries were distressed than were large intermediaries. They offer two hypothetical explanations for this unexpected result: 1) Exchange rate exposure - a major shock to Korean intermediaries - was presumably negligible for the small financial intermediaries. 2) Small financial intermediaries allocated loans better, because of the"peer monitoring"natural to their mutual nature and deep local roots. Available data did not allow the authors to test the first hypothesis, but they did find support for the second one. Estimating a logit model, they find that the probability of distress was systematically smaller for the mutual savings and finance companies that stayed closer to their origins (for example, collecting many deposits as"credit mutual installment savings") and for those with a longer history of doing business in their local community.
|Date of creation:||31 May 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
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.:
- Anil K. Kashyap & Jeremy C. Stein, 1994.
"Monetary Policy and Bank Lending,"
in: Monetary Policy, pages 221-261
National Bureau of Economic Research, Inc.
- repec:oup:qjecon:v:109:y:1994:i:2:p:491-515 is not listed on IDEAS
- Sinkey, Joseph F, Jr, 1975. "A Multivariate Statistical Analysis of the Characteristics of Problem Banks," Journal of Finance, American Finance Association, vol. 30(1), pages 21-36, March.
- Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
- Rebel A. Cole & Jeffery W. Gunther, 1993.
"Separating the likelihood and timing of bank failure,"
Financial Industry Studies Working Paper
93-2, Federal Reserve Bank of Dallas.
- Cole, Rebel A. & Gunther, Jeffery W., 1995. "Separating the likelihood and timing of bank failure," Journal of Banking & Finance, Elsevier, vol. 19(6), pages 1073-1089, September.
- Rebel A. Cole & Jeffery W. Gunther, 1993. "Separating the likelihood and timing of bank failure," Finance and Economics Discussion Series 93-20, Board of Governors of the Federal Reserve System (U.S.).
- Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
- Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-50, September.
- Anil K Kashyap & Jeremy C. Stein, 1997. "What Do a Million Banks Have to Say About the Transmission of Monetary Policy?," NBER Working Papers 6056, National Bureau of Economic Research, Inc.
- Besley, Timothy & Coate, Stephen, 1995.
"Group lending, repayment incentives and social collateral,"
Journal of Development Economics,
Elsevier, vol. 46(1), pages 1-18, February.
- Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers 152, Princeton, Woodrow Wilson School - Development Studies.
- Martin, Daniel, 1977. "Early warning of bank failure : A logit regression approach," Journal of Banking & Finance, Elsevier, vol. 1(3), pages 249-276, November.
- Altman, Edward I., 1977. "Predicting performance in the savings and loan association industry," Journal of Monetary Economics, Elsevier, vol. 3(4), pages 443-466, October.
- Angeloni,I. & Buttiglione,L. & Ferri,G. & Gaiotti,E., 1995. "The Credit Channel of Policy Across Heterogeneous Banks:the Case of Italy," Papers 256, Banca Italia - Servizio di Studi.
- Asli Demirgüç-Kunt, 1989. "Deposit-institution failures: a review of empirical literature," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-18.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2332. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.