Banking LAw

Condition of Indonesian Banking

1st November 1998 was the beginning of the banking crisis in Indonesia, 16 (sixteen) banks were closed by Central Bank. The closure of these 16 banks resulted in customers making massive withdrawals and transfers of funds, which was also followed by the rejection of L/C (letters of credit) from national banks by foreign banks. The closure of these 16 banks turned out to have systemic consequences for other national banks.

After the closure of the 16 (sixteen) banks, the level of public trust in national banking increasingly decreased, where bank offices were filled with customers queuing to withdraw funds or transfer funds to foreign banks, distrust of these banks was based on the lack of guarantees for customers, is there will be funds if a bank closes and ends up being liquidated, considering at that time there was no institution which provided certainty to customers regarding their deposits in the bank.

The closure of these 16 banks also provides an easy picture for customers that there is mismanagement of national banks and weak of supervision.

Due to the condition of Indonesian banking at that time which had a systemic impact to other national banks, the Government of Indonesia guarantee the payment of the obligations of the national banks to the customers and creditors (blanket guarantee), the cost for saving national banking system is 800 trillion rupiah.

The condition of banking in 1998 was valuable lesson, due to this condition, Nowdays Indonesia has legal regulations in terms of bank supervision and bank rescue efforts, indonesia has a financial supervision authority (OJK) as a financial supervision, Indonesia has Deposit Insurance Corporation (LPS) is an institution that guarantees customer funds.