21 more concentrated in terms of the number of companies and individuals that could borrow fixed-term funds at Uloating interest rates _2_ . It required an awareness of the market and management skills that only the larger companies and merchants had. It is important to note that while the banks would lend to a company in the financial sector, for example, such loans could be used to invest in, or lend to, real estate. As noted earlier some Gulf and Kuwaiti companies were heavily involved in the stock market.

_End of the Boom._ A number of factors precipitated the decision to intervene but there was no run on the banks on any other "panic" that stopped operations. But by 1984 the banks were encountering an alarming increase in irregular debt. Borrowers were increasingly unable to pay the interest or principal due on loans because there was a shortage of liquidity among clients involved in the stock market. This was a natural evolution of the settlement system followed by the A Panel. The cheque by cheque clearing system was a slow process. The increasing number of "distressed' borrowers, whether illiquid or insolvent, were simultaneously trying to liquidate assets, "clogging" the clearing process. This made it difficult for dealers to know not only how much each receivable was worth but also in what kind of assets -- and when -- they would be paid. For the banks it became increasingly difficult to assess a borrower's financial position and, in particular, to differentiate between illiquid and insolvent borrowers.

When the government stopped its share support purchases toward the end of 1984, there was no market for sellers to turn to. Under the support system, there were market prices for most shares at discounts to the support prices. Dealers pressed to make cash payments sold shares at lower prices, since the government did not purchase all the available shares. The other route for dealers requiring cash was to borrow from the investment companies against the security of shares at government support prices. While this eased the dealers' cash flow problems, it only replaced the market debt with commercial debt carrying interest, putting more strain on the dealers. As the government eased out of the price support system and KSC prices fell, it became easier for the banks to evaluate the value of the securities they held.

A third factor in the decision to intervene was the bank's rising awareness that borrowers were unable to service their debts and losses were likely. Acting to protect their deteriorating positions, bank officials sent warnings and threatening letters, and finally as the spiral of losses grew, filed court actions. This sudden shift in attitude toward banks' best customers, some of whom were related to shareholders or were well known, was a difficult move. The rising number of court cases brought by the banks prompted the interest of the National Assembly. The banks had inherited from the stock markets' crisis dealers and merchants who, in the settlement process, had been hardened by the A Panel procedures. And in response the Minister of Finance, in a July 1985 economic report, outlined a five-point program to address the debt problems of the financial institutions and the business community. The 21/ See Statistical Appendix 7.