Banking crisis in Indonesia in 1998 gives reason to conduct a guarantee of savings to ease depositors' panic and to return public trust due to the relatively poor banking condition. However, guarantee of savings is indicated to weaken the role of control of public/depositors and stockholders in risk of banking.
The condition triggers stockholders to take actions against ethics and principles of healthy banking because banking failures will become the burden for minority stockholders, deposit insurance or depositors. On the other hand, control on banking risk by depositors has weakened because the savings have been guaranteed by government or deposit insurance corporation.
That was said by Taswan, S.E., M.Si, a lecturer of Faculty of Economics of Stikubank University, Semarang, in his open Doctoral exam at BRI Auditorium of Faculty of Economics and Business of UGM, Monday (7/2). In that occasion, Taswan explained his dissertation entitled Ownership of Banking, Obedience of Regulation and Market Discipline.
Effective control of banking risk taking according to Taswan is through regulations. Regulations aim to prevent or minimize the risk and to give protection to depositors. Depositors often do not have access and incentive to supervise bank optimally so regulators take action to represent the interest of depositors in implementing regulations.
Taswan mentioned that the interest of regulator has no direct connection with the aim to maximize bank profits or losses. However, if the public interest is ignored, it will impact on external interest. Therefore, stockholders will obey the regulation and fulfill all prevailing rules and take the low risk. “The higher obedience of regulation, the lower the risk level,” said the man born in Cilacap, 16 February 1965.
From the research conducted by Taswan on group of bank samples with low and high charter value, it appeared that domestic, private ownership and foreign ownership, and ownership concentration positively influence the risk level. Stockholders of domestic and foreign private banks and ownership concentration have rather caused moral hazard instead of reducing banking risk. “This is supported by the negative and significant impact of charter value on banking risk. The lower the charter value, the higher the risk. The Charter value becomes an incentive in strengthening the relationship between bank ownership with risk level,” he explained.
Other finding shows that regulation obedience negatively influences risk level. The higher regulation obedience, the lower the banking risk level. This shows that regulation obedience as public representation which is conducted by regulators still works in controlling banking risk. “However, charter value is not an incentive for relationship between regulation obedience with risk level,” he added.
Meanwhile, market discipline gives punishment for banks which take high risk by conducting fund migration. Market discipline conducts control of banking risk taking through savings withdrawal. “Market discipline in the period of implicit and explicit guarantee is not different statistically. This shows that market discipline prevails without showing scheme difference of deposit guarantee but because bank takes higher risk,” he explained.