The 1997 Financial Crisis And Its Impact On Financial Reforms

There is plenty of literature on the causes and symptoms of the Asian financial crisis in general, and the experience of Thailand in particular see, for example, McKinnon and Pill (1998). Specifically, the poor supervision of commercial banks and finance companies by the BoT is widely seen as a key reason for the Thai economy's rapid collapse after the baht was floated in July 1997 (Vatikiotis, 1998 Vatikiotis and Keenan, 1999), along with the aforementioned build-up of private international...

The Determinants Of Bank Failure

The causes of bank failure can be examined using either qualitative or quantitative approaches. In this section both are employed, with a view to providing the reader with a comprehensive review of the determinants of bank failure. The section begins by reporting the results of qualitative studies of bank failure. Based on 'case studies', it is possible to identify common causes of bank failure. Having reviewed the qualitative results, the findings of econometric models used to identify the...

Summary of Qualitative and Quantitative Findings

In this subsection, the degree to which the qualitative review and quantitative studies of the causes of bank failure are compatible is discussed. The results of quantitative studies show, overwhelmingly, that profitability, defined as the ratio of net income to total assets, is one of the key determinants of bank failure. That is, as profitability rises, the probability of failure declines. Management is responsible for a bank's profit, making this finding consistent with the case study...

Moral Hazard Looting and Failures of Governance and Supervision

The scale of losses in individual institutions and the overall severity of domestic banking crises also depend upon microeconomic or structural factors. It is well understood that failing institutions may be subject to both excessive risk taking and fraud. The US savings and loan crisis (not incidentally a banking crisis under our definition, since while of substantial magnitude it did not threaten the integrity of the US banking system or payment mechanism) illustrates how the management and...

Bank Failure Quantitative Models

While a qualitative review of bank failure provides some insight into what causes a bank to fail, these ideas must be subjected to more rigorous testing. Any econometric model of bank failure must incorporate the basic point that insolvency is a discrete outcome at a certain point in time. The outcome is binary either the bank fails or it does not. The discussion in the previous section shows that banks (or, in Japan, almost the entire banking sector) are often bailed out by the state before...

Bank Failure The Controversies

Most academics, politicians (representing the taxpayer), depositors and investors accept the idea that the banking sector is different. Banks play such a critical role in the economy that they need to be singled out for more intense regulation than other sectors. The presence of asymmetric information is at the heart of the problem. Bankers, their customers, regulators and investors have different information sets on the health of a bank. Small depositors are the least likely to have...

Documentary Credits

A documentary credit, also known as a letter of credit (L C), is a written undertaking by a bank on behalf of a buyer importer to pay the seller an amount of money within a specified time provided the seller presents documents strictly in accordance with the terms laid down in the L C. It is useful to assume that the banks only handle irrevocable L Cs, since revocable L Cs are hardly used these days given that under a revocable L C the importer can amend or even cancel it without prior notice...

Internationalization Securitization And Derivatization

In the last three decades, there has been substantial liberalization of the banking sector and financial innovation. These changes have been facilitated by reregulation of banks, which continue to lie at the heart of all financial systems, and have themselves driven changes in prudential, and monetary, regulation policy. The general trend has been away from prescriptive regulation of financial activities, quantitative control of bank lending in total (in pursuit of monetary control) and to...

Extensions Of The Scope Of Banking And Financial Institution Operations

Encouraging Banks to Open Branches or Participate in Joint Ventures Abroad In order to support Bangkok as the financial centre in the region, the BoT allowed the commercial banks to open branches in Laos, Kampuchea, Vietnam, Burma, as well as mainland China. These branches could provide banking services not only to the local community, but also to Thai investors or foreign investors who use Thailand as a gateway or springboard to the region. Also, they would gather or collect prime information...

References

Aigner, D.J., Lovell, C.A. and Schmidt, P. 1977 , 'Formulation and estimation of stochastic frontier production function models', Journal of Econometrics, 6, 21-37. Akhavein, J.D., Berger, A.N. and Humphrey, D.B. 1997 , 'The effects of megamer-gers on efficiency and prices evidence from a profit function', Review of Industrial Organisation, 12, 95-139. Altunbas, Y, Liu, M.-H., Molyneux, P. and Seth, R. 2000 , 'Efficiency and risk in Japanese banking', Journal of Banking and Finance, 24 10 ,...