The arena of multiinterest, governance and fraud – A critical review of BC bailout

Abstract

The bailout of PT. Bank Century (BC) at the end of 2008 ignites many debates. If the Indonesian Central Bank had not bailed it out, would it have been a systemic disaster for Indonesian economic? BC’s total assets were not significant to the national banking asset. Why was it so important to bail BC out? This research wants to find answers to the following questions: 1) considering the internal problems of BC since 2005, was it worth to bail it out, and was the amount paid appropriate? 2) How bad was the internal problem in consideration of corporate governance theory, fraud theory, and in accordance with prudential banking principals? 3) Was the decision to bail out relevant for the national banking stabilization? 4) Was the failure of BC in 2008 a symptom of market failure, or a governance failure of BC and a regulation failure of the Indonesian Central Bank? This research uses descriptive qualitative method by in-depth analysis. The qualitative variables are classified to some significant factors which influence the decision to bail out. The result of this research shows that the historical performance, the corporate government and the fraud of the bank were not appropriately reviewed before the government decided to bail BC out. Even though the bailout was able to keep the national banking stabile at that time, the judgment of the decision was not purely economic. The non-economic factor was that the bank was too politically significant to fail.