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Risk and efficiency in East Asian banks

Luc Laeven ()

No 2255, Policy Research Working Paper Series from The World Bank

Abstract: The author uses a linear programming technique (data envelopment analysis) to estimate the inefficiencies of banks in Indonesia, the Republic of Korea, Malaysia, the Philippines, and, Thailand. He applies this technique to the pre-crisis period 1992-96. Assessing a Bank's overall performance requires assessing both efficiency and risk factors, so the author also introduces a measure of risk taking. This risk measure helps predict which banks were restructured after the crisis of 1997. The author finds that foreign-owned banks took little risk relative to other banks in East Asia, and that family-owned and company-owned banks were among the highest-risk takers. Banks restructured after the 1997 crisis had excessive credit growth, were mostly family-owned or company-owned, and were almost never foreign-owned.

Keywords: Environmental Economics&Policies; Financial Intermediation; Banks&Banking Reform; Financial Crisis Management&Restructuring; Banking Law; Payment Systems&Infrastructure (search for similar items in EconPapers)
Date: 1999-12-31
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