Bank failures and mergers in Turkey: 1992-2014

Meral Varish Kiefer

Abstract


The Turkish banking system went through a period of crisis in 1999-2001. As a result, reforms were instituted and the banking system was consolidated. The system was then only mildly affected by the global crisis in 2008. This study  examines the process of bank  failures  and  mergers  and  acquisitions  during  this  period  in Turkey.  A proportional hazard is used to determine the bank-specific accounting ratios that predict bank defaults and mergers and acquisitions in Turkey. The focus is on capitalization, a key regulatory tool.  Capitalization decreases the failure rate, as expected, and does so at a decreasing rate. This is consistent with regulatory policy that focuses on capitalization. For banks at risk, income is a good short-run predictor of default. The results for mergers and acquisitions imply that under-capitalized banks are more likely to be acquired. Finally, the implied “frontier” for the trade-off between return and equity and default risk is calculated.


Keywords


Bank crisis; Bank policy making; Capitalization; Duration model; Mergers & acquisitions (M&A).

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DOI: http://dx.doi.org/10.18533/jefs.v2i05.144

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