Economists sometimes argue that there is no reason to debate the issue on efficiency grounds. Commercial banks should be allowed all powers, and competition will ensure they will adopt only those ones that they can perform competently. In other words, so long as competition is not artificially restricted, efficient institutions will emerge. This paper shows that unrestricted competition does not necessarily lead to efficient institutions if the markets in which institutions compete are not naturally competitive. Therefore, the debate on what powers banks should have is relevant even from an efficiency point of view.
More evidence is needed to inform policy makers, especially in developing countries.
However, they acknowledge that these variables had little predictive power for the East Asian crisis. This turns out to make a substantial difference to the results - unweighted regressions perform much less well. While the authors argue that this technique serves to correct for less reliable data in poorer countries, it has the effect of substantially ignoring the poorer countries. A more plausible justification for treating poorer countries differently is that their banking crises have different causes. More generally, it remains to be determined whether this approach detects underlying determinants of banking system failure, as distinct from the triggers that determine just when a long-weakened system will visibly collapse.