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The existence of financial intermediaries is arguably an artifact of information asymmetry. Beyond simple financial transactions, financial intermediation provides a mechanism for information transmission, which can reduce the degree of information asymmetry and consequently increase market efficiency. During the process of information transmission, the bank is able to provide unique services in the production and exchange of information. Therefore, banks have comparative advantages in information production, transmission, and utilisation. This book provides an overview of commercial banking and includes empirical methods in banking such risk and bank performance, capital regulation, bank competition and foreign bank entry, bank regulation on bank performance, and capital adequacy and deposit insurance.

Coins, banknotes, medals, seals (numismatics) --- deposit insurance --- capital adequacy --- bank risk --- foreign bank entry --- bank competition --- H-statistics --- pooled regression --- dynamic panel models --- risk-taking behavior --- banks --- efficiency --- data envelopment analysis --- Asia-Pacific --- regulations --- bank capital --- meta-analysis --- Bayesian model-averaging --- capital regulation --- competition --- Indian banking sector --- panel data --- revenue diversification --- bank risks --- bank performance --- net interest income --- non-interest income --- risks --- capital

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The existence of financial intermediaries is arguably an artifact of information asymmetry. Beyond simple financial transactions, financial intermediation provides a mechanism for information transmission, which can reduce the degree of information asymmetry and consequently increase market efficiency. During the process of information transmission, the bank is able to provide unique services in the production and exchange of information. Therefore, banks have comparative advantages in information production, transmission, and utilisation. This book provides an overview of commercial banking and includes empirical methods in banking such risk and bank performance, capital regulation, bank competition and foreign bank entry, bank regulation on bank performance, and capital adequacy and deposit insurance.

Coins, banknotes, medals, seals (numismatics) --- deposit insurance --- capital adequacy --- bank risk --- foreign bank entry --- bank competition --- H-statistics --- pooled regression --- dynamic panel models --- risk-taking behavior --- banks --- efficiency --- data envelopment analysis --- Asia-Pacific --- regulations --- bank capital --- meta-analysis --- Bayesian model-averaging --- capital regulation --- competition --- Indian banking sector --- panel data --- revenue diversification --- bank risks --- bank performance --- net interest income --- non-interest income --- risks --- capital

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Foreign bank participation has increased steadily across developing countries since the mid-1990s. This paper documents this trend and surveys the existing literature to explore the drivers and consequences of this phenomenon, paying particular attention to the differences observed across regions both in the degree of foreign bank participation and in the impact of this process. Local profit opportunities, the absence of barriers to entry, and the presence of mechanisms to mitigate information problems have been the main factors driving foreign bank entry across developing countries. In general, foreign bank participation has been shown to exert a positive influence on banking sector efficiency and competition. The weight of the evidence suggests that foreign bank presence does not endanger, but rather enhances banking sector stability. And although some case studies suggest that foreign bank entry limits access to finance, many cross-country studies offer evidence to the contrary.

Access to Finance --- Bank branches --- Bank for international settlements --- Banking sector --- Banking stability --- Banking system --- Banks & Banking Reform --- Debt --- Debt Markets --- Emerging Markets --- Finance and Financial Sector Development --- Financial integration --- Financial regulation --- Financial services --- Foreign banks --- Foreign Direct Investment --- Foreign entry --- Interest income --- Interest rates --- International Economics and Trade --- Legal framework --- Legislation --- Operating costs --- Overhead costs --- Private Sector Development --- Profitability --- Return on assets --- Subsidiaries

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In the East Asian crisis, connections - with industrial groups or influential families - increased the probability of distress for financial institutions. Connections also made closure more, not less, likely, suggesting that the closure processes themselves were transparent. But larger institutions, although more likely to be distressed, were less likely to be closed, suggesting a too big to fail policy; Politics and regulatory capture can play an important role in financial institutions' distress. East Asia's financial crisis featured many distressed and closed financial intermediaries in an environment with many links between government, politicians, supervisors, and financial institutions. This makes the East Asian financial crisis a good event for studying how such connections affect the resolution of financial institutions' distress. Bongini, Claessens, and Ferri investigate distress and closure decisions for 186 banks and 97 nonbank financial institutions in Indonesia, the Republic of Korea, Malaysia, the Philippines, and Thailand. They find that after July 1997, 42 percent of the institutions experienced distress (were closed, merged, or recapitalized, or had their operations temporarily suspended). By July 1999, 13 percent of all institutions in existence in July 1997 had been closed. Using financial data for 1996, the authors find that: Traditional CAMEL-type variables - returns on assets, loan growth, and the ratio of loan loss reserves to capital, of net interest income to total income, and of loans to borrowings - help predict subsequent distress and closure; None of the foreign-controlled institutions was closed, and foreign portfolio ownership lowered an institution's probability of distress; Connections - with industrial groups or influential families - increased the probability of distress, suggesting that supervisors had granted forbearance from regulations. Connections also made closure more, not less, likely - suggesting that the closure processes themselves were transparent; But larger institutions, although more likely to be distressed, were less likely to be closed, while (smaller) nonbank financial institutions were more likely to be closed. This suggests a too big to fail policy; These policies, together with the fact that resolution processes were late and not necessarily comprehensive, may have added to the overall uncertainty and loss of confidence in the East Asian countries, aggravating the financial crisis. This paper - a product of the Financial Sector Strategy and Policy Group, Financial Sector Vice Presidency - is part of a larger effort in the group to study the causes and resolution of financial distress. The authors may be contacted at pbongini@mi.unicatt.it, cclaessens@worldbank.org, or gferri@worldbank.org.

Balance Sheet --- Banking System --- Banks and Banking Reform --- Currencies and Exchange Rates --- Debt Markets --- E-Business --- Economic Policy, Institutions and Governance --- Emerging Markets --- Finance --- Finance and Financial Sector Development --- Financial Crisis --- Financial Distress --- Financial Institutions --- Financial Intermediation --- Financial Literacy --- Financial Risks --- Good --- Interest --- Interest Income --- Investors --- Loan --- Loans --- Loss Of Confidence --- Macroeconomics and Economic Growth --- Non Bank Financial Institutions --- Political Economy --- Portfolio --- Private Sector Development --- Prudential Regulations --- Public Institution Analysis and Assessment --- Public Sector Development --- Reserves --- Return --- Return On Assets