# Table 5.11

|**Roleof**|**theBanking Sector**|in**Asia**||
|---|---|---|---|
|**Banksas:**<br>**Thailand**|**Indonesia**|**Korea**|**Malaysia**|
|**Issuers**<br>**X**|**X**|**x**||
|**Underwriters**<br>**X**|||**x**|
|**Investors**<br>**X**|**X**|**X**|x|
|**Guarantors**|**X**|**X**|**X**|
|||(beforethecrisis)|(before the crisis)|
|Note:Listedintheleft-handcolumnareare|aswherethebankin|gsectorplaysacrucial<sup>r</sup>|<sup>ole.</sup>|
|Source:Shirai(200lb: Table3,19)||||

The Asian Policy Forum (APF)/ADB Institute'<sup>94</sup> views commercial<sup>bank</sup> involvement in the development of bond markets (its so-called _intermediate stage_<sup>of</sup> financial development) as logical and desirable as an interim step in the long-term evolution of financial market development in Asia. The rationale for this view is<sup>related</sup> to the particular difficulties that Asian countries face in their financial environment, including severe information asymmetry between issuing companies<sup>and publicinvestors,</sup> the lack of companies sufficiently large, mature and reputable for their information<sup>to be</sup> credible, and the necessity to establish the legal and regulatory framework needed<sup>for</sup> sound capital markets. These difficulties hamper the development of bond<sup>marketsin the</sup> region. This group also expects the bank-based system to continue its dominance<sup>in Asia</sup> and believes a sound capital market cannot be developed to replace it in a short<sup>periodof</sup> tinme.'19 The APF argues that banks already have certain advantages related to<sup>the nature</sup> of their existing business that would make them natural intermediaries<sup>in underdeveloped</sup> bond markets. They could serve as investors (relying on their previously<sup>collected</sup> household savings and information on issuing companies) and as issuers (relying<sup>on their</sup> large size and already established reputation). In addition, they can make<sup>use of</sup> information they already possess on borrowers to underwrite bonds, which would<sup>leadto</sup> lower costs relative to investment banks. In an _intermediate financial market structure,_ "commercial banks continue to provide traditional banking services while<sup>becoming</sup> major issuers, investors, underwriters, dealers/brokers, and guarantors in the<sup>corporate</sup> bond market. Thus, banks actively engage in securities and related business,<sup>such as</sup> derivatives."196 [See Table G.7 in the General Appendix and Shirai (2001a:<sup>34-46)fora</sup> detailed assessment of the advantages of this structure.] While the aforementioned concept may be logical, the risks inherent in<sup>bank</sup> involvement in the securities business should not be underestimated.<sup>Some of theseare</sup> indicated in Table G.7. In a financial system, banks are the most fragile part<sup>becauseof</sup> the "demandable" nature of their liabilities. Even a small triggering event can<sup>lead to a</sup> run on a bank.'<sup>97</sup> The APF does caution that certain disadvantages could arise in the _intennediate financial market structure._ These include a higher default ratio on bank loans<sup>as the</sup> more reputable firms would prefer lower cost bond issuance leaving<sup>less reputablefirms</sup> 77