Even Japan, one of the world’s advanced industrial countries, has struggled with a bad-loan problem, partially because of massive bank lending in an environment of inadequate prudential supervision.
Moreover, countries where the banking system is large relative to GDP may be forced to endure more 7  BIS Review 2/2000  severe macroeconomic disruptions when a banking crisis actually occurs, since the costs of cleaning up the crisis are likely to be large compared with the size of the economy and firms are likely to be highly dependent on banks for the provision of credit.