Title: Stock Market Responses to Bank Restructuring Policies during the East Asian Crisis
Abstract: No AccessPolicy Research Working Papers21 Jun 2013Stock Market Responses to Bank Restructuring Policies during the East Asian CrisisAuthors/Editors: Daniela Klingebiel, Randy Kroszner, van Pieter Oijen, Luc LaevenDaniela Klingebiel, Randy Kroszner, van Pieter Oijen, Luc Laevenhttps://doi.org/10.1596/1813-9450-2571SectionsAboutPDF (0.2 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:During a crisis of confidence, announcements of deposit guarantees may give market participants short-term comfort. But stock market responses show that using public funds for bank bailouts is not a credible way to restore the health of the financial sector. The East Asian crisis began in Thailand in mid-1997 when an ailing financial sector, a slowdown in exports, and large increases in central bank credit to weak financial institutions triggered a run on the baht. Then the crisis spread to other countries in the region as common vulnerabilities and revaluations of risk in emerging markets triggered large capital outflows. To better understand the impact of different policy responses to financial crises, Klingebiel, Kroszner, Laeven, and van Oijen investigate how stock markets in East Asian countries reacted to the initial policy announcements of bank and financial restructuring—especially how banking and nonfinancial sectors in Indonesia, the Republic of Korea, Malaysia, and Thailand fared in response to announcements of different restructuring measures. They find that prices of bank stocks responded positively to announcements about government guarantees of bank liabilities. Nonfinancial companies gained in value when guarantees were announced, but their stock prices were negatively affected by announcements favoring public recapitalization schemes and generous liquidity support programs. Possibly the market was concerned that public funds per se would not restore the health of the financial sector—that they would not be sufficient or would not be used to restructure bank balance sheets and operations and allow banks to engage in meaningful corporate restructuring. The announcements of increased public support may have been viewed as a signal that the financial institutions were in a financially weaker position than previously thought. This paper—a product of the Financial Sector Strategy and Policy Department—is part of a larger effort in the department to better understand the costs and benefits of different measures for resolving financial crisies. The authors may be contacted at [email protected] or [email protected] Previous bookNext book FiguresReferencesRecommendedDetailsCited ByPolitical heterogeneity, subjective optimism, and stock market outcomesApplied Economics, Vol.54, No.1321 September 2021Back Matter: Statistical Appendixes and Bibliography5 December 2019The effect of bank bail-outs in the EUJournal of International Money and Finance, Vol.95President Life Cycle and Stock Market OutcomesSSRN Electronic JournalImpact of the Financial Crisis on Cross-Border Mergers and Acquisitions and Concentration in the Global Banking IndustryThunderbird International Business Review, Vol.58, No.221 June 2015Are China's new energy stock prices driven by new energy policies?Renewable and Sustainable Energy Reviews, Vol.45The fading stock market response to announcements of bank bailoutsJournal of Financial Stability, Vol.9, No.1Bank competition, crisis and risk taking: Evidence from emerging markets in AsiaJournal of International Financial Markets, Institutions and Money, Vol.23The Real Effects of Financial Sector Interventions during CrisesJournal of Money, Credit and Banking, Vol.45, No.122 January 2013The Effect of the Financial Crisis on the Jordanian Industrial SectorInternational Journal of Finance & Banking Studies (2147-4486), Vol.2, No.121 January 2013Uncertainty about Government Policy and Stock PricesThe Journal of Finance, Vol.67, No.419 July 2012Debt dependence and corporate performance in a financial crisis: evidence from the sub-prime mortgage crisisJournal of Economics and Finance, Vol.36, No.110 July 2010Banking Crises: A ReviewAnnual Review of Financial Economics, Vol.3, No.1The (In)Effectiveness of Announcements of Banking BailoutsSSRN Electronic JournalUncertainty About Government Policy and Stock PricesSSRN Electronic JournalHOW DID THE ASIAN STOCK MARKETS REACT TO BANK MERGERS AFTER THE 1997 FINANCIAL CRISIS?Pacific Economic Review, Vol.13, No.221 April 2008Corporate valuation and the resolution of bank insolvency in East AsiaJournal of Banking & Finance, Vol.29, No.8-9How good is the market at assessing bank fragility? A horse race between different indicatorsJournal of Banking & Finance, Vol.26, No.5The Politics of Financial Reform in Korea, Malaysia, and Thailand: When, Why, and How Democracy Matters?Journal of East Asian Studies, Vol.2, No.124 March 2016 View Published: March 2001 Copyright & Permissions Related RegionsEast Asia & PacificRelated CountriesIndonesiaKorea, Republic ofRelated TopicsFinance and Financial Sector DevelopmentLaw and Development KeywordsASSET MANAGEMENTASSET MANAGEMENT COMPANIESBANKBANK RESTRUCTURINGBANK STOCKSBANKINGBANKING CRISESBANKING SYSTEMSBANKSCAPITALCRED DEPOSIT GUARANTEESEMERGING MARKETSFINANCIAL CRISESFINANCIAL INSTITUTIONSFINANCIAL RESTRUCTURINGGOVERNMENTSGUARANTEESRECAPITALIZATIONVALUE PDF DownloadLoading ...