Strategies for rescuing banking in the economic crisis: A study of the new institutional economic perspective

This research intends to carry out an intensive study to the public policy case for producing the strategy of banking policy formation after the monetary crisis. The methodology consists of qualitative research approach. In this research, the case study method is employed. The data are analyzed by using the interactive analysis moving ones from the data collecting, condensation, and performance, until the conclusion or verification. The result shows that the bad governance has led to unclear contract between the principal and the agent. This increases the transaction cost. The government (the principal) through the banking liberalization policy gives the big freedom to the banks (the agents) to carry out the business extensification without the support of strict supervision. This has caused the bad bank management was not detected and corrected by the central bank. In addition, the incentive structure in allocating resources does not stimulate the bank obedience to the given formal rules. © IJSTR 2019.