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Mr. Jian-Ye Wang and Mr. Márcio Valério Ronci

situation seriously weakened the system’s financial soundness. The banking sector crisis became the heart of the economic crisis in Indonesia. Under these circumstances, local commercial banks in Indonesia faced immense difficulties in securing confirmation of their letters of credit from foreign commercial banks. In early 1998, the total value of Indonesian imports transacted through letters of credit plunged to less than one-third of the level in the precrisis period. Indonesian companies had difficulties importing raw materials and components in a timely manner. In

International Monetary Fund
This paper examines episodes of the banking system distress and crisis in a large sample of countries. The empirical results identify several macroeconomic and financial variables as useful leading indicators. The main macroeconomic indicators were of limited value in predicting the Asian crises; the best warning signs were proxies for the vulnerability of the banking and corporate sector. Full-blown banking crises are shown to be more associated with external developments, and domestic variables are the main leading indicators of severe but contained banking distress.