Turkish banking system: Financial crises and effects of stability programs

There is general belief that financial crises are rare events. However, bankingcrises have become common events especially in the developing worlds. In manyregions, almost all countries experienced some kind of banking difficulties. Financialcrises experienced in the period after 1990 have revealed the importance ofmonitoring of financial institutions and that regulatory and supervisory authoritiesand markets should have more active and effective role in this monitoring process.Macroeconomic instability, global financial conditions, the structure of domesticfinancial system, exchange rate regime and the problems in the regulatory andsupervisory system are the causes of financial crises.Recent years, financial crisis that arises in many region of the world andbanking crisis that is one of the main causes of financial crisis have affected alldeveloped and developing countries. Because of the effect of the banking crisis onthe economy, it is more important than the crisis in other sectors. The reason of thisis that banks are institutions which determine resource allocation. There are twophases that are influenced by banking crisis. In the first phase, first or several banksand then whole banking system is influenced. In the second phase, crisis was alreadyspread, increases in interest rates, cost of credits and credit demands which are notcovered etc.. have been affecting different sectors of economy in many ways.The loss in total output and the fiscal costs of restructuring bank balance sheetsmake the financial crises more important. However, consistent policies that associatewith macroeconomics and financial balance will decrease the probability of financialcrises.