In the early stages the three private banking systems were similar and grew rapidly. All three have had liberal policies toward licensing new commercial banks, believing that more banks would generate the competition needed to drive down deposit and lending rates, and provide the capital needed to support the emerging private sector. Many new private banks were established by enterprises that wanted access to cheaper funding than was available from other banks. Little thought was given at first to the implications of this policy for banking safety and supervision. Banking distress may be desirable.
Banking crises die down relatively quickly.
When crises arise, authorities should respond firmly and promptly. Corruption and weakness should never be rewarded. Banking crises should be prepared for. Supervisors should send strong signals to bankers about appropriate banking behavior. The full report is available on our FTP server.