Contents

Factors Driving the Prompt Corrective Action of Supervisory Authorities: Evidence from Korea's Savings Banks

Sohn, Wook / Sim, Eun Sup

Abstract

Korea's savings banks that expanded their number of high-risk loans experienced defaults after the 2008 global financial crisis. We consider the prompt corrective action (PCA) to analyze factors that drive savings banks to failure given that an order for PCA by a supervisory authority normally leads to default. We conduct discrete choice models to estimate the probability of PCA using 2005-11 data on 103 Korea savings banks. We find that the postexamination actions taken by supervisory authorities and a rapid increase in loans increase the possibility of PCA. These results suggest that depositors and the market can reduce the costs incurred from defaults by identifying information that predicts PCA.

Issue Date
2015-11
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Keywords
RISK-TAKING; COMPETITION
DOI
10.1080/1540496X.2014.1013876
Journal Title
EMERGING MARKETS FINANCE AND TRADE
Start Page
90
End Page
101
ISSN
1540-496X
Language
English
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