The Political Openness of Banking System, Political Governance, Law Enforcement and Cost of Banking Crisis: Indonesia in the International Perspective

Abstract

The recent banking crises in Asia and Latin America have raised a question on the cost of banking crisis. The Asian crisis resulted in the virtual collapse of Indonesia’s financial system. Most of the banks that dominated the system were pushed into insolvency, while the ratio of problem loans (NPLs) to total lending may have reached as high as 80%. Moreover, almost all countries experience banking crisis. The study try to investigate the impact of political governance, openness policy on foreign ownership and legal system within political crisis situation on the cost of banking crisis. It is very clear indecisive policy has made the cost of crisis increase dramatically.

Keywords: Banking crisis, liberalization, Cost of banking and political crisis

JEL Classification: G21, G32