exchange rate depreciated, and inflation accelerated further.
The non-government sector generally could not be relied upon to disciplinebankmanagement and to provide new capital, even if the banks were economically solvent. The capital market was yet to be developed, and market oversight was weak or nonexistent. Rather, the non-government sector relied critically upon the banking system to provide transaction services. In this sense, the continued functioning of a banking system represented a kind of public good.
In addition, the systemic nature of the banking
’ assets. However, they do not enjoy the same rights as shareholders do for selecting board members and having access to information through the board. To disciplinebankmanagement, MAHs have to rely on the monitoring of the board by shareholders or on their ability to divest out of the bank. MAHs can gain some benefit out of the monitoring only if interests of the shareholders and MAHs coincide. These issues may give rise to complex agency problems ( Archer, Abdel Karim et al. (1998) ; El-Gamal (2003) ) and may lead to moral hazard on part of the bank management
Rapid growth of Islamic banking in developing countries is accompanied with claims about its relative resilience to financial crises as compared to conventional banking. However, little empirical evidence is available to support such claims. Using data from Pakistan, where Islamic and conventional banks co-exist, we compare these banks during a financial panic. Our results show that Islamic bank branches are less prone to deposit withdrawals during financial panics, both unconditionally and after controlling for bank characteristics. The Islamic branches of banks that have both Islamic and conventional operations tend to attract (rather than lose) deposits during panics, which suggests a role for religious branding. We also find that Islamic bank branches grant more loans during financial panics and that their lending decisions are less sensitive to changes in deposits. Our findings suggest that greater financial inclusion of faith-based groups may enhance the stability of the banking system.
their deposits and other debt. This guarantee reduces incentives for creditors to disciplinebankmanagements because they can count on E to surge in value when and if declines in the worth of other assets threaten to render the bank insolvent.
Ideally, to mitigate the incentive conflict, authorities should be required to demonstrate to their taxpayer principals that they use realistic cost-benefit calculations to price and size E optimally. However, in practice, one cannot find an information reporting system that establishes this degree of accountability
This paper reviews financial restructuring in Kazakhstan, and the condition of the financial system in the period following independence. The authorities’ efforts to redress financial sector weaknesses fall into two phases: The first phase addressed the immediate crises in the banking system by slowing bank licensing, tightening prudential regulations, and dealing with large nonperforming loans. The next phase saw reforms to regulatory and institutional structures. The paper shows that, by the end of 1997, substantial reforms in the structure of the financial system had been accomplished and a major financial collapse avoided. However, the banking system had not begun to play an active role in financial intermediation.
financial problems. Inaccurate reporting limits the ability of supervisory authorities to address deteriorating financial conditions in a timely fashion and impedes the ability of market forces to disciplinebankmanagement.
3. Following independence in 1992, the countries of the former Soviet Union had to deal with weak financial systems but were hampered by the magnitude and complexity of the other problems they faced. Government institutions had to be restructured, the financial imbalances existing when the Soviet Union was dissolved had to be eliminated, and complex
Like most transition economies, Bulgaria, Lithuania, and Mongolia suffered severe banking crises, which had to be resolved before growth could resume. The macroeconomic and institutional failings that led to these crises are described, and parallels are drawn with the causes of banking crises in industrial and developing countries. Resolving the crises proved technically and politically difficult, and setbacks occurred. Successful resolution required the implementation of a comprehensive and decisive strategy, involving thorough-going bank restructuring, heavy fiscal costs, and institutional and legal reforms.
managers. The judiciary and the legal profession were not fully familiar with market-based economic concepts and in particular banking practice, and in any case the courts were overburdened and reputedly liable to be open to influence.
The nongovernment sector generally could not be relied upon to disciplinebankmanagement or provide new capital, even if the banks were economically solvent. Rather, the nongovernment sector relied critically on the banking system to provide transaction services, extend loans, and offer savings instruments. The government also relied on
This paper discusses key findings of the detailed assessment of observance of financial sector standards and codes in Switzerland. Switzerland has a relatively unique banking sector, with a high market concentration by the two largest domestic banks. The overall assessment of the peer-review team is that Switzerland is generally in compliance with the Basel Core Principles with two exceptions where the Swiss Federal Banking Commission (SFBC) is deemed largely compliant. The two exception areas are budgetary independence and banking activities not subject to SFBC supervision.