Fraud, banking crisis, and regulatory enforcement: Evidence from micro-level transactions data

Authors: Soral, H.; İşcan, Talan; Hebb, Gregory

Source: European Journal of Law and Economics, Volume 21, Number 2, April 2006 , pp. 179-197(19)

Publisher: Springer

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Abstract:

Can widespread fraud cause large scale banking crises? We address this issue in the context of the recent Turkish banking crisis of 2000, which was followed by a severe recession and currency crisis. Using detailed micro-level transactions data, we show that related lending and back-to-back loans across banks were used to circumvent regulation and transfer deposits to private holding companies that were ruined. Our evidence suggests that systemic fraud coupled with weak enforcement of conventional regulatory principles can be a source of banking crisis.

Keywords: Banking crises; Regulatory enforcement; Related lending; Looting; Turkey

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10657-006-6649-y

Affiliations: 1: Email: Gregory.Hebb@Dal.Ca

Publication date: 2006-04-01