Endnotes

¹The ratings are assigned on a scale from 1 to 5. Banks with ratings of 1 or 2 are considered to present few, if any, supervisory concerns, while banks with ratings of 3, 4, or 5 present moderate to extreme degrees of supervisory concern.

²Due to differences in national accounting, taxation, and supervisory regimes, FSI data are not strictly comparable across countries.

³To be "well-capitalized" under US federal bank regulatory agency definitions, a bank holding company must have a leverage ratio of at least 5%.

⁴According to Laeven and Valencia (2008) the share of NPLs at the peak of the 1997 East Asia crisis was 32.5% in Indonesia, 35% in Korea, 30% Malaysia, 20% in the Philippines, and 33% in Thailand. According to reports of the Board of Governors of the U.S. Federal Reserve System, the delinquency rate for business and real estate loans reached 7% and 6%, respectively, in 1991 at all commercial U.S. banks. Therefore, an 8% nonperforming ratio is conservative.

⁵The London Approach sets specific rules for collective action in order to limit deadlocks in the restructuring process. The United Kingdom entered a recession during the mid-1970s, with the banks having little experience in organizing internal workout units and dealing effectively with debtors short of formal action. The insolvency legislation was out of date and not suited to achieving constructive resolutions. Against this backdrop, the Bank of England chose to play an interventionist role, largely through suasion, by bringing together both the debtor and its banks and brokering a restructuring of the lending arrangement.

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