Things can go drastically wrong when banks are poorly regulated – as we saw during the 1998-98 Asian economic crisis. The problem is further compounded when political connections come into the picture. During the 1990s, I personally saw how banks were falling over themselves to lend to certain politically well connected firms, sometimes merely on the basis of a “Letter of Comfort” from a profitable holding company.

And when the day of reckoning comes, as it did in 1997-98, it is the government (read, the taxpayer) that has to step in to bail out loan-saddled banks to the tune of billions of ringgit. To this day, Malaysians still do not know for sure who the culprits were.

I wrote this piece for the New Internationalist magazine, highlighting some of the problems that plagued our banking system back then. Will we ever learn?

Banks against the wall

Dipping deep into public funds, Anil Netto finds the Malaysian Government bailing out banks… and their well-connected debtors.

When I was a child, my father used to pick me up after school and drive me home. Sometimes he would stop by at the local branch of the United Malayan Banking Corporation (UMBC), where he had an account. I would wait in the car while he applied for a bank draft or arranged to make some other payment. Those were the days before computers when a simple transaction could take what seemed like an eternity for a child waiting outside in the car.

Today, as I pass by that same street, the bank – once Malaysia’s third largest – has vanished, as if some alien spacecraft had zapped it. It is now a supermarket. Its disappearance is a classic example of how government bails out banks while the well-heeled and well-connected escape responsibility. Full article

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