3 <!-- Start of picture text --> Box 2: Advantages and Disadvantages of Decentralized Creditor led Approach to Financial<br>Restructuring<br>Advantages<br>* Ensures that the informational capital that banks have accumulated on their borrowers is preserved.<br>* Leaving loans in banks may provide better incentives for recovery and for avoiding future losses by<br>inproving loan approval and monitoring procedures.<br>* Leaving loans in banks avoids the general deterioration of payment discipline that can occur if assets<br>are transferred to an AMC which fails to properly manage them.<br>* Banks can provide additional financing which may be necessary in the restructuring process.<br>* Political considerations in restructuring decisions are limited as the actual restructuring is left to the<br>private sector and not transferred to a public agency which may be prone to political pressure.<br>Disadvantages<br>* Economies of scale - i. e. consolidation of scarce work out skills and resources - are not achieved.<br>* Ownership links between banks and corporations are not dealt with and may thus imnpede corporate<br>restructuring.<br>* May prove a distraction for banks' core business of '"making loans".<br>* Banks typically are not good at restructuring which requires different types of skis.<br><!-- End of picture text --> The remainder of the<sup>paperlooksattheexperienceofbankingcriseswherethe</sup> responsibility for the debt<sup>workoutswas mainly left with the banks.</sup>

# **HI. Cross Country Experience**<sup>**withDecentralized-CreditorLedRestructuring**</sup>

# **A. Methodology**

**_Sample selection._** We adopted a two step<sup>approachinselecting country casesforour</sup> detailed analysis. First,<sup>onthe basisof asurvey of pastbankingcrises(CaprioandKlingebiel</sup> 2002), we identify twelve<sup>casesin which governmentslargelyadopted decentralizedcreditor-led</sup> strategies. These are seven emerging<sup>market economies (Argentina,Brazil,Chile,Colombia,</sup> Thailand, Turkey, Venezuela),<sup>twoindustrializedcountries(JapanandNorway)andthree</sup> transition economies (Hungary,<sup>PolandandSlovenia).Second,weconductanextensive</sup> investigation of the availability<sup>of detailedinformationanddataonthe resolutionprocess.In</sup> five out of the 12 cases,<sup>we haveinsufficientdetailed informationtoundertakeathorough</sup> analysis as we do not have<sup>completeinformationoncorporaterestructuringstrategiesincluding</sup> the scope of corporate distress,<sup>appliedwork-outmechanism,andfinancial dataon the corporate</sup> sector and banking sector. These country cases are<sup>Brazil, Colombia,Slovenia,Turkeyand</sup> Venezuela. We therefore<sup>analyze sevencountry cases whichinclude two industrializedcountries</sup> [Japan (1991-present)<sup>andNorway(1987-93)],threeemergingmarketeconomies[Argentina</sup> (1980-82), Chile (1981-86),<sup>andThailand(1997-present)]'</sup> and two transition countries [Hungary (1991-95)<sup>and Poland(1992-95].</sup>

l It is important to point<sup>out here thattheanalysisof theThaicase hastoa prelirninaryevaluationasthe crisis</sup> started in 1997, and the latest<sup>corporatedatawe haveforThailand dates from mid-2001.</sup>