The influence of government intervention on the trajectory of bank performance during the global financial crisis: A comparative study among Asian economies

Cherng G. Ding*, Chiu Hui Wu, Pao Long Chang

*Corresponding author for this work

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

The global financial crisis that started from 2007 onwards spread around the world and impacted the performance of banks in major economies. Many governments have used a variety of intervention policies to recover their financial systems. By examining the dynamic changes in bank performance before and after government intervention, this study demonstrates the use of the piecewise latent trajectory model. We used the data collected from Bloomberg for banks of five major Asian economies, Japan, South Korea, Hong Kong, Singapore and Taiwan, over the eleven-quarter period from the 4th quarter of 2007 to the 2nd quarter of 2010 on six financial performance indicators reflecting solvency, credit risk and profitability. The change patterns of bank performance before/after government intervention during the global financial crisis have been compared among the five economies. Our empirical results indicate that, on average, the bank performance in terms of solvency, credit risk, and profitability improves after government intervention. Moreover, the influence of government intervention on bank performance depends on the evaluative financial indicator, the economy, and whether banks are internationalized. South Korea and Hong Kong have been identified to be the economies with stronger bank performance after government intervention. Policies demonstrated useful in South Korea and Hong Kong have been summarized and discussed.

Original languageEnglish
Pages (from-to)556-564
Number of pages9
JournalJournal of Financial Stability
Volume9
Issue number4
DOIs
StatePublished - 1 Jan 2013

Keywords

  • Bank performance
  • Global financial crisis
  • Government intervention
  • Piecewise latent trajectory model

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