• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
 
PART I
INTEGRATIVE REPORT
 
1
C
HAPTER
1
1. Introduction
Eective banking supervision is the basic element o saety nets aiming at creating andpromoting fnancial system stability. Banks, or the most part, are the dominant fnancialsystem component in the economy. Banks carry numerous risks inherent with the business,and thus need to be regulated, supervised and managed in a healthy manner. Bank deaults– especially with systemic eect – can endanger the stability o the fnancial system and theeconomy. Hence, the ultimate objective o bank supervision is to promote and maintain thesoundness o fnancial institutions via regulation, which includes o-site analysis and on-site examination o risk management, fnancial conditions, and compliance with laws andregulations.Te lack o supervisory capability is oen cited as one o the reasons or fnancialsystem weaknesses [Mayes, Halme dan Liuksila (2001), Batunanggar (2002 and 2004)].As Mishkin (2001) argued, asymmetric inormation leads to adverse selection and moral-hazard problems that have an important impact on fnancial systems and justifes the needor prudential supervision.Te origin o the Asian fnancial crisis was fnancial and corporate sectors weaknessescombined with macroeconomic vulnerabilities. Weaknesses in bank and corporategovernance and the lack o market discipline allowed excessive risk taking, as prudentialregulations were weak or poorly enorced. Close relationship between governments,fnancial institutions, and borrowers worsened the problem particularly in Indonesia andKorea [Lindgren et al. (1999)]. In a similar vein, Nasution (2000) and Batunanggar (2002and 2004) argued that drawbacks in risk management and bank governance as well as weakbanking supervision were among the main contributory actors exacerbating the fnancialcrisis in Indonesia in 1997-1998. Because o a combination o domestic and oreign actors,the crisis was particularly severe in Indonesia, Korea and Tailand. Malaysia and Philippinesalso experienced some eects o the fnancial crisis and adopted measures to deal with theturmoil and strengthen their fnancial systems.Te cost o a banking crisis is signifcantly large. Hoggarth, Reis and Sapporta (2001)ound that the cumulative output losses incurred during crisis periods were large, estimated
COMPARISON OF PROBLEM BANK IDENTIFICATION,INTERVENTION AND RESOLUTION IN THE SEACENCOUNTRIES
by Sukarela Batunanggar
1
1
Visiting Research Economist at Te SEACEN Centre and Executive Researcher at Financial System Stability Bureau, Bank Indonesia. Te viewsexpressed in this paper are those o the author and do not necessarily reect the views o Te SEACEN Centre or Bank Indonesia. E-mail address:batunanggar@bi.go.id. Te author would like to thank Dr. Aluthgedara Karunasena, Dr. Bambang S.Wahyudi, Dr. Junggun Oh and stas at TeSEACEN Centre, Mr. Steven Avel (Bank o Papua New Guinea), Mr. Bisma Raj Dhungana (Nepal Rastra Bank), Mr. Harrison S.W Ku (Central Bank o the Republic o China (aiwan)), Ms. Uma Rajoo (Bank Negara Malaysia), P.W.D.N.R. Rodrigo (Central Bank o Sri Lanka) and Mr. Rath Sovannorak(National Bank o Cambodia) or their contributions to the research project; Mr. Conrado A. Reyno (Bangko Sentral ng Pilipinas) and stas as well asMrs.ongurai Limpiti (Bank o Tailand) and stas or providing inormation or the survey; Pro. Joon-Ho Hahm (Yonsei University, South Korea)and Dr. David Scott (Word Bank) or their insightul comments and suggestions; Mr. Halim Alamsyah, Mrs. SWD Murniastuti, and Dr. WimbohSantoso or great support; S. Raihan Zamil and Boyke W. Suadi or helpul comments and editing; and Ita Rulina S., Nurulhuda Mohd Hussain andHaslina Muda or helpul assistance. All errors are those o the author’s.
 
2
in the order o 15-20 percent, on average, o annual GDP
2
. Te case-study evidence suggeststhat prompt intervention reduces the costs o intervention and promotes e ciency [OECD(2002a)]. Conversely, the inability to take ast and decisive actions in restructuring thebanking system, when combined with political intervention, make the resolution o thebanking crisis ineective and costlier [De Luna-Martinez (2000), Batunanggar (2002 and2004)]. Failure to gauge the magnitude o the problems or delays in its resolution invariably compounds the problems and costs involved (Sheng, 1992). Furthermore, in the case o Indonesia, Batunanggar (2002 and 2004) ound that the absence o fnancial saety nets anda crisis-management ramework and guidelines as well as political intervention were amongthe culprits behind the ineective, prolonged, and costly resolution o its banking crisis.Te central banks and supervisory authorities especially in crisis-aected countriesare committed to enhance the eectiveness o their bank supervision along with their post-crisis bank restructuring programme. Te main characteristic o a systemic crisis is that thefnancial condition o a bank will rapidly deteriorate as a result o an adverse economy and/or a widespread bank-run. Pre-crisis, the ocus o the supervisor is to assess the conditiono the banks to determine quickly which o the banks have a better probability o survivingrom those which are likely to ail i a crisis occurs.Hence, a clear and comprehensive ramework and guidelines as well as methods ordealing with problem banks are crucial. Te problem banks identifed should be managedrapidly, objectively, transparently, and consistently in order to restore the health o thefnancial system and the economy.
1.1 Objectives o the Study 
Most o the researches and literatures on problem banks ocused on the resolution o systemic crisis with less attention given to the management o problem banks. Tereore,this project aims to analyse problem bank identifcation, intervention, and resolution innine SEACEN countries
3
and to identiy the key issues as well as derive lessons learned orthe eective management o problem banks.Tis chapter compares the approach and ramework or problem bank identifcation,intervention and resolution in the SEACEN countries. Furthermore, it draws key lessonslearned and recommendations or more eective bank problem identifcation and resolutionor the SEACEN countries in particular and or other countries in general.Te individual country papers identiy the key issues – strengths, drawbacksand challenges – and propose policy recommendations in dealing with problem banksidentifcation, identifcation and resolution in each country.
2
Tey provided a cross-country study on the measurement o the losses incurred during periods o banking crises. In contrast to previous research,they also ound that the output losses incurred during crises in the developed countries are as high, or higher, on average, than those in the emerging-market economies and also those o neighbouring countries that did not at the time experience severe banking problems. In the emerging-marketeconomies, banking crises appear to be costly only when accompanied by a currency crisis. Tese results seem robust in allowing or macroeconomicconditions at the outset o crisis – in particular low and declining output growth – that have also contributed to uture output losses during crisesepisodes.
3
Cambodia, Indonesia, Malaysia, Nepal, Papua New Guinea, Philippines, Republic o China (aiwan), Sri Lanka, and Tailand. Philippines andTailand completed the survey but did not contribute their country papers.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...