The Political Economy of Distress in East Asian Financial Institutions

Posted: 2 Oct 2001

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Paola Bongini

Università degli Studi di Milano-Bicocca

Giovanni Ferri

LUMSA University

Multiple version iconThere are 2 versions of this paper

Abstract

The 1997-1999 East Asian crisis is an interesting case for studying the determinants of distress and closure of financial institutions. Of a sample of 283 financial institutions from Indonesia, Korea, Malaysia, the Philippines, and Thailand, 120 experienced distress, and by July 1999, 38 were closed. We find that traditional, CAMEL-type financial data for 1996 help predict distress and closure. "Connections" - with industrial groups or influential families - increased the likelihood of distress, however, suggesting that supervisors had granted selective prior forbearance from prudential regulations. Since closure was more, not less, likely with connections, the closure processes themselves appear transparent. We also find evidence of "too big to fail" policies.

Keywords: Financial Sector Fragility, Early Warning Systems, East Asian Financial Crisis

JEL Classification: G21, G33, G38

Suggested Citation

Claessens, Stijn and Bongini, Paola and Ferri, Giovanni, The Political Economy of Distress in East Asian Financial Institutions. Journal of Financial Services Research, Vol. 19, February 2001. Available at SSRN: https://ssrn.com/abstract=273685

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Paola Bongini

Università degli Studi di Milano-Bicocca ( email )

piazza dell'Ateneo Nuovo 1
Milano, 20126
Italy
+39 0264483012 (Phone)

Giovanni Ferri

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

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