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# Notes

1. See Calomiris (1989) for a description of this "classic' example of a banking panic.

2. A variety of factors went into the determination of country coverage. Malaysia and Korea are known to have reformed at a very gradual pace, and are usuaUy viewed as success stories, so it was difficult to consider a study without them. New Zealand is at the opposite extreme, having reformed at least as abruptly as any of the Southem Cone countries but without the some of the latter's mn- -economic constraints. Turkey and<sup>Indonesia</sup> present interesting win between" cases, with reform programs that are rapid in some areas and gradual<sup>in others,</sup> so they offer an intriguing middle ground.

3. See Summers and Caprio (1992) for an elaboration.

4. See Dimitri Margaritis, "Financial Policy Reform in New Zealand," in Caprio, Atiyas, and Hanson.

_5._ In New Zealand the slight decline of the IOCR may reflect in part the lower output path<sup>associated with</sup> disinflationary macro policy and may therefore be temporary. At the same time, aU of these comparisons are over relatively short time horizons, and therefore at least in part may represent cyclical forces. And as noted in Schiantarelli et al (1992), there are significant problems in estimates of the real capital stock, so for example<sup>the</sup> different data series for Ecuador show different swings of the IOCR.

6. This methodology thus allows for the possibility that firms could become more efficient by<sup>greater access</sup> to credit. Note that efficiency gains following reform are expected to be larger the greater<sup>the government's pre-</sup> reform involvement in credit allocation decisions - especially, the greater the government's<sup>role in allocating credit</sup> at the firm level, as this activity is (wide) open to rent seeking.

7. In Korea, investment by small and medium size firms became less constrained, and that<sup>by large firms</sup> more constrained, following the reforms of the 1980s. However, although<sup>reliance on directed credit decreased,</sup> and real interest rates became modestly positive, this change also reflects a shift in directed<sup>credit away from large</sup> firms.

8. A real interest rate increase from slightly to very high levels likely means that funds<sup>are flowing to</sup> - exceptionally high risk borrowers alone that is, it effectively reduces the net worth of aU credit worthy borrowers.

9. As Caprio [1992, 1992a] notes, bank lending depends on the information set, or information<sup>capital, that</sup> banks possess. In developing economies, where accounting and auditing<sup>skiUs (and standards) are scarce, banks</sup> will build up their stock of information capital by establishing banking<sup>relationships with their clients, often large</sup> firms. Exogenous shocks to relative prices may greatly reduce the<sup>value of this information capital, and thus lead</sup> banks to attempt to retreat from lending, especially where information about<sup>other potential borrowers is limited.</sup> Tunisia appears to fit this case. Despite the large devaluations in Indonesia, this<sup>problem did not arise there, as</sup> banks continued lending, even, as Schiantarelli et al show, to small firms.

10. By interest rate mismatch is meant the phenomenon whereby banks<sup>fund long-term fixed rate loans with</sup> shorter-term deposits.

11. This story applies to the diversification of U.S. banks into<sup>developing country debt, to the rise in oil lending</sup> by Texas banks and S&Ls, and to the boom in property lending in the<sup>United States, Japan, the United Kingdom,</sup> Scandinavia... While the role of regulation and interferences with<sup>credit allocation was different, in each of these</sup> cases the simultaneous shift of bank portfolios appears to have<sup>contributed to a temporary move in asset prices, the</sup>