Indonesia's banking system collapsed during the 1997-98 crisis, costing taxpayers 40% of annual GDP. Large banks and state banks suffered more than small and private ones. The government reduced capital requirements for all banks, transferred assets to a state-owned company, and excluded the private sector from the process. Too many banks were closed, nationalized, and merged unnecessarily. A market-oriented approach could have raised capital requirements, minimized costs, and allowed bidders to take over insolvent banks.