Commentaries
this thesis can be presented as follows. The domination of the banking sector over the
capital market implies that loan financing dominates equity financing. Personal rela-
tionships between banks and their corporate customers dominate over the anonymity
of the equity market. This, in turn, contributes to 'crony' capitalism accompanied by
excessive lending in often economically dubious undertakings. Such a system is very
fragile. Even a relatively small shock, such as the deterioration of export conditions,
caused by an appreciation of the currency or a decline of world demand, can render
dubious projects bankrupt. If the amount and the scale of bankrupt undertakings are
large, the domino effect amongst banks may lead entire economies into crisis.
It is not my objective in this commentary to assess the role of the banking over-
reliance in the East Asian crisis 1997 ^ 98. The above hypothetical crisis scenario simply
demonstrates that overreliance is a current and significant economic issue. Therefore, it
is worthwhile to investigate the type of data which was used as evidence of the
considered phenomenon. At this point I would also like to make clear that I will focus
on the basic, quantitative, side of overreliance.
The question can be stated thus: what kinds of measures have been used in the
literature to show that the role of banking is large (or even excessive) in East Asia in
relation to other countries? Three principal groups of data can be identified, each of
them addressing a different aspect of the dominance issue:
(1) the relative size of the banking sector,
(2) the structure of the financial market,
(3) corporate finance.
Within the first group, we find three major macroeconomic ratios. All of them have
GDP in the denominator, while the numerator constitutes the total value of bank
assets (Barth et al, 1998), bank credit (Claessens and Glaessner, 1997), or bank deposits
(Zahid, 1995). Using these ratios Mayer (1998), for example, describes the case of
Malaysia, in which the bank credit/GDP ratio in 1993 reached 170%, approximately
3 times more than in the USA.
The second type of data involves ratios between the value of bank assets and the
size of other sectors of the financial market. The latter is usually the value of out-
standing corporate bonds or the capitalisation of the equity market (Barth et al, 1998).
Barth states, for example, that the corporate bonds in many East Asian countries are
almost nonexistent.
The third group of measures uses the language of corporate finance. The most
popular are the debt to equity ratio calculated for the whole economy (Chowdhury
and Islam, 1993; Wade, 1998) and other indicators of financial leverage (Pomerleano,
1998). In a 1993 report, the World Bank performed an international comparison of the
share of loans in net financing sources of nonfinancial corporations, pointing out that
the figure for East Asian countries is within the range of 30% to 50%, whereas for
Anglo-American economies it does not exceed 20% (page 225).
The research on the relative significance of banking obviously does not stop at the
above ratios and percentages. It is accompanied by analyses of the ownership structure
of the banking sector, banks' corporate equity holdings, etc. However, here I am
interested only in the basic methods. The reason is the following. There is a basic
way to express the role of banking in East Asia compared with the rest of the world
which has been neglected in the existing literature.
The suggestion is to take a look at the data presented in a magazine called The Banker.
In the July 1997 issue we can find the list of the 1000 biggest banks in the world as at the end
of 1996 (according to the USD value of capital). There are more recent bank rankings
available, but the advantage of this list is that the data at this date offer a picture of
world banking immediately preceding the start of the Asian crisis. Ifwe make use of the