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The Political Economy Of Distress In East Asian Financial Institutions, Paola Bongini, Stijn Claessens, Giovanni Ferri

Paola Bongini

The 1997±1999 East Asian crisis is an interesting case for studying the determinants of distress and closure of ®nancial institutions. Of a sample of 283 ®nancial institutions from Indonesia, Korea, Malaysia, the Philippines, and Thailand, 120 experienced distress, and by July 1999, 38 were closed. We ®nd that traditional, CAMEL-type ®nancial data for 1996 help predict distress and closure. ``Connections''Ðwith industrial groups or in¯uential familiesÐincreased the likelihood of distress, however, suggesting that supervisors had granted selective prior forbearance from prudential regulations. Since closure was more, not less, likely with connections, the closure processes themselves appear transparent. We also ®nd evidence …