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Global Governance of Financial SystemsThe International Regulation of Systemic Risk$
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Kern Alexander, Rahul Dhumale, and John Eatwell

Print publication date: 2005

Print ISBN-13: 9780195166989

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780195166989.001.0001

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A Microeconomic Examination of Financial Fragility

A Microeconomic Examination of Financial Fragility

A Test of Capital Adequacy Standards

Chapter:
(p.201) 8 A Microeconomic Examination of Financial Fragility
Source:
Global Governance of Financial Systems
Author(s):

Kern Alexander (Contributor Webpage)

Rahul Dhumale

John Eatwell (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195166989.003.0010

This chapter examines the link between the relative level of an individual bank's adequacy and the fragility of the banking system. Specifically, the probability of a banking crisis is modeled, using one characteristic of individual banks — their capital adequacy ratios. It considers the responses of banks in three Asian countries: Thailand, Indonesia, and South Korea. The importance of distinguishing between cosmetic and effective changes to capital adequacy ratios to avoid the systemic threats that can grow out of microeconomic weaknesses in domestic banking systems, as witnessed in Asia, is discussed.

Keywords:   banking system capital adequacy ratios, Thailand, Indonesia, South Korea, banking regulation, banking crisis

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