Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?

Taking the Korean experience as a laboratory experiment in systemic financial crises, the authors analyze distress in individual institutions among two groups of financial intermediaries. They pool together a group of large financial intermediaries (commercial banks, merchant banking corporations) a...

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Main Authors:	Bongini, Paola, Ferri, Giovanni, Kang, Tae Soo
Format:	Publications & Research
Language:	en_US
Published:	World Bank, Washington, DC 2015
Subjects:	accounting agency problems asset diversification asymmetric information balance sheet bank examinations bank loans Bank of Korea banking systems bankruptcy borrowing capital adequacy central bank commercial banks community banks comparative advantage competitiveness cooperative banks corporate governance credit unions damages default risk deposit insurance depositors deposits devaluation developed countries early warning systems economic development empirical analysis exchange rate financial assets financial crises financial crisis financial data financial distress financial information financial institutions financial intermediaries financial ratios financial risk financial sector fiscal year government support inefficiency insolvency interest income interest rates liquidity managerial efficiency merchant banking merchant banks moral hazard net worth now accounts operating expenses ownership structure private banks profitability qualitative response model rating system recapitalization regulatory capture regulatory forbearance regulatory infrastructure retirement return on assets risk management savings small banks state owned banks stockholders supervisory agencies time deposits total revenue mercantile system corporate culture credit effectiveness savings banks
Online Access:	http://hdl.handle.net/10986/21584

id	okr-10986-21584
recordtype	oai_dc
spelling	okr-10986-215842021-04-23T14:04:03Z Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful? Bongini, Paola Ferri, Giovanni Kang, Tae Soo accounting agency problems asset diversification asymmetric information balance sheet bank examinations bank loans Bank of Korea banking systems bankruptcy borrowing capital adequacy central bank commercial banks community banks comparative advantage competitiveness cooperative banks corporate governance credit unions damages default risk deposit insurance depositors deposits devaluation developed countries early warning systems economic development empirical analysis exchange rate financial assets financial crises financial crisis financial data financial distress financial information financial institutions financial intermediaries financial ratios financial risk financial sector fiscal year government support inefficiency insolvency interest income interest rates liquidity managerial efficiency merchant banking merchant banks moral hazard net worth now accounts operating expenses ownership structure private banks profitability qualitative response model rating system recapitalization regulatory capture regulatory forbearance regulatory infrastructure retirement return on assets risk management savings small banks state owned banks stockholders supervisory agencies time deposits total revenue financial intermediaries financial crises commercial banks mercantile system corporate culture financial institutions credit effectiveness savings banks merchant banking Taking the Korean experience as a laboratory experiment in systemic financial crises, the authors analyze distress in individual institutions among two groups of financial intermediaries. They pool together a group of large financial intermediaries (commercial banks, merchant banking corporations) and another group of tiny mutual savings and finance companies. Both the too-big-to-fail doctrine and the credit channel approach suggest that the probability of distress would be greater for small intermediaries. But the authors find that proportionately fewer small intermediaries were distressed than were large intermediaries. They offer two hypothetical explanations for this unexpected result: 1) Exchange rate exposure - a major shock to Korean intermediaries - was presumably negligible for the small financial intermediaries. 2) Small financial intermediaries allocated loans better, because of the "peer monitoring" natural to their mutual nature and deep local roots. Available data did not allow the authors to test the first hypothesis, but they did find support for the second one. Estimating a logit model, they find that the probability of distress was systematically smaller for the mutual savings and finance companies that stayed closer to their origins (for example, collecting many deposits as "credit mutual installment savings") and for those with a longer history of doing business in their local community. 2015-03-11T14:58:55Z 2015-03-11T14:58:55Z 2000-05 http://hdl.handle.net/10986/21584 en_US Policy Research Working Paper;No. 2332 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper East Asia and Pacific Korea, Republic of
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	accounting agency problems asset diversification asymmetric information balance sheet bank examinations bank loans Bank of Korea banking systems bankruptcy borrowing capital adequacy central bank commercial banks community banks comparative advantage competitiveness cooperative banks corporate governance credit unions damages default risk deposit insurance depositors deposits devaluation developed countries early warning systems economic development empirical analysis exchange rate financial assets financial crises financial crisis financial data financial distress financial information financial institutions financial intermediaries financial ratios financial risk financial sector fiscal year government support inefficiency insolvency interest income interest rates liquidity managerial efficiency merchant banking merchant banks moral hazard net worth now accounts operating expenses ownership structure private banks profitability qualitative response model rating system recapitalization regulatory capture regulatory forbearance regulatory infrastructure retirement return on assets risk management savings small banks state owned banks stockholders supervisory agencies time deposits total revenue financial intermediaries financial crises commercial banks mercantile system corporate culture financial institutions credit effectiveness savings banks merchant banking
spellingShingle	accounting agency problems asset diversification asymmetric information balance sheet bank examinations bank loans Bank of Korea banking systems bankruptcy borrowing capital adequacy central bank commercial banks community banks comparative advantage competitiveness cooperative banks corporate governance credit unions damages default risk deposit insurance depositors deposits devaluation developed countries early warning systems economic development empirical analysis exchange rate financial assets financial crises financial crisis financial data financial distress financial information financial institutions financial intermediaries financial ratios financial risk financial sector fiscal year government support inefficiency insolvency interest income interest rates liquidity managerial efficiency merchant banking merchant banks moral hazard net worth now accounts operating expenses ownership structure private banks profitability qualitative response model rating system recapitalization regulatory capture regulatory forbearance regulatory infrastructure retirement return on assets risk management savings small banks state owned banks stockholders supervisory agencies time deposits total revenue financial intermediaries financial crises commercial banks mercantile system corporate culture financial institutions credit effectiveness savings banks merchant banking Bongini, Paola Ferri, Giovanni Kang, Tae Soo Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?
geographic_facet	East Asia and Pacific Korea, Republic of
relation	Policy Research Working Paper;No. 2332
description	Taking the Korean experience as a laboratory experiment in systemic financial crises, the authors analyze distress in individual institutions among two groups of financial intermediaries. They pool together a group of large financial intermediaries (commercial banks, merchant banking corporations) and another group of tiny mutual savings and finance companies. Both the too-big-to-fail doctrine and the credit channel approach suggest that the probability of distress would be greater for small intermediaries. But the authors find that proportionately fewer small intermediaries were distressed than were large intermediaries. They offer two hypothetical explanations for this unexpected result: 1) Exchange rate exposure - a major shock to Korean intermediaries - was presumably negligible for the small financial intermediaries. 2) Small financial intermediaries allocated loans better, because of the "peer monitoring" natural to their mutual nature and deep local roots. Available data did not allow the authors to test the first hypothesis, but they did find support for the second one. Estimating a logit model, they find that the probability of distress was systematically smaller for the mutual savings and finance companies that stayed closer to their origins (for example, collecting many deposits as "credit mutual installment savings") and for those with a longer history of doing business in their local community.
format	Publications & Research
author	Bongini, Paola Ferri, Giovanni Kang, Tae Soo
author_facet	Bongini, Paola Ferri, Giovanni Kang, Tae Soo
author_sort	Bongini, Paola
title	Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?
title_short	Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?
title_full	Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?
title_fullStr	Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?
title_full_unstemmed	Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?
title_sort	financial intermediary distress in the republic of korea : small is beautiful?
publisher	World Bank, Washington, DC
publishDate	2015
url	http://hdl.handle.net/10986/21584
_version_	1764448641797324800

Financial Intermediary Distress in the Republic of Korea : Small Is Beautiful?

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