includes developing procedures and capabilities to take over banks and transfer

Includes developing procedures and capabilities to

This preview shows page 6 - 8 out of 21 pages.

includes developing procedures and capabilities to take over banks and transfer their deposits to viable banks. These strategies should also include plans for dealing with nonperforming assets, necessary corporate financial restructuring, and strategies for holding those parties responsible for bank insolvency legally accountable. Viable banks are recapitalized, bad assets are dealt with and regulations are tightened. Strengthening viable institutions involve asset valuation, loss recognition, and recapitalization. When banks breached minimum capital adequacy requirements, most countries required that the banks be recapitalized and rehabilitated, often under binding agreements with the supervisory authorities. However, in many of the crisis countries the transition to strict capital adequacy requirements was implemented gradually , but transparently , to give banks sufficient time to restructure their balance sheets and to raise additional capital during a period of capital scarcity. The authorities resolved those institutions that failed to raise capital and were insolvent. They used techniques such as government recapitalization/nationalization, mergers, sales of banks, bridge banks and asset management companies, purchase and assumption transactions, and outright liquidation. Regardless of the techniques used, shareholders typically absorbed losses until their capital was fully written off. One of the lessons that have been learned from this experience is that a legal framework must be in place that allows the authorities to take over insolvent banks. In addition, the authorities will need to create an infrastructure to manage the takeover process.
Image of page 6

Subscribe to view the full document.

- 7 - C. The Recovery Phase: Measures to Normalize the System Nationalized banks are reprivatized, corporate debt is restructured, and bad assets are sold. In all countries where the governments recapitalized institutions the goal was to privatize the nationalized institution as soon as possible. Thailand has made significant progress having sold off a couple of banks and attracted foreign capital as well. In one instance, privatization involved selling a bank to a public employee pension fund. Korea has had some success in divesting the government’s stake in the banking sector by having sold 51 percent of one bank to a foreign group and taken steps to privatize other banks. 5 One of the difficulties facing policy makers is what to do if suitable private investment capital is not available to allow the privatization of the government owned banks. If the government must continue to own recapitalized banks it should recognize that the only public goals are the smooth functioning of the banking and payments systems. Banks, including those owned by the government should be allowed to play an independent role in the intermediation of funds and performance of payment services. This includes allowing banks to play their traditional role of independently allocating credit within the private sector. Governments should not direct the lending activities of these banks.
Image of page 7
Image of page 8
  • Winter '14

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes