Central Bank Transparency and The Cost of Banking Crisis

Abstract

Several studies have examined the affect of quality of the government  institution and the level of corruption on the cost of crisis. Rather than  watch the goverment, we concern on the role of central  bank quality institution to  predict the  cost  of crisis. We then  include the  central  bank transparency, government owned on banking sector, corruption and some macroeconomic indicator to predict the cost of crisis that consist of banking loss and economic loss. Using sample of 13 crisis countries during 1997 ? 2006, we find that some governance indicators like political stability, rule of law and control of corrruption have a strong relationship with the central bank transparency. Then, we find that central bank transparency,  government  ownership on banking sector, corruption, and monetary  indicator affect  the  deterioration on  the  bank  lending during the  crisis.  If the  fiscal indicator and geographic location added  to the  model, it can predict the  deceleration economic growth  during the crisis period.

Key words: central bank transparency, government owned bank, corruption, cost of crisis