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Precarious credit equilibria: reflections on the Asian financial crisis


  • Joseph Bisignano


This paper examines some of the origins of the recent East Asian financial crisis. It is composed of three parts. The first considers the role of moral hazard in the crisis, specifically the influence of implicit and explicit government guarantees which may have contributed to excess borrowing in East Asia, similar to what occurred in Latin America during the 1980s. We then consider the role played by weaknesses in prudential regulation and supervision of both banks and non-bank financial intermediaries. Insufficient official oversight and poor corporate governance arguably were at the root of the limited financial transparency which prevented the correct assessment of risks by market participants. The combination of these two factors can be argued to have shifted credit markets from an equilibrium with excess borrowing to one with excessive credit rationing, resulting in a severe liquidity crisis. Comparisons are made with the micro-financial vulnerabilities which eventually led to earlier financial crises in Latin America and the Nordic countries.

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  • Joseph Bisignano, 1999. "Precarious credit equilibria: reflections on the Asian financial crisis," BIS Working Papers 64, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:64

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    References listed on IDEAS

    1. Dooley, Michael P, 2000. "A Model of Crises in Emerging Markets," Economic Journal, Royal Economic Society, vol. 110(460), pages 256-272, January.
    2. Dwight M. Jaffee & Thomas Russell, 1984. "Imperfect Information, Uncertainty, and Credit Rationing: A Reply," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 869-872.
    3. Joseph E. Stiglitz, 1991. "Government, Financial Markets, and Economic Development," NBER Working Papers 3669, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Knedlik, Tobias & Ströbel, Johannes, 2006. "The role of banking portfolios in the transmission from currency crises to banking crises - potential effects of Basel II," IWH Discussion Papers 21/2006, Halle Institute for Economic Research (IWH).
    2. Pablo Bustelo & Clara Garcia & Iliana Olivie, 1999. "Global and Domestic Factors of Financial Crises in Emerging Economies: Lessons from the East Asian Episodes (1997-1999)," Working Papers 002, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    3. Schmidt Paul-Günther, 2001. "Ursachen systemischer Bankenkrisen: Erklärungsversuche, empirische Evidenz und wirtschaftspolitische Konsequenzen," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 52(1), pages 239-280, January.
    4. Arias, Guillaume & Erlandsson, Ulf, 2004. "Regime switching as an alternative early warning system of currency crises - an application to South-East Asia," Working Papers 2004:11, Lund University, Department of Economics.
    5. Sungsup Ra, 2005. "Bad Credit Equilibria with the Abnormally Utilized Commerical," Finance 0503012, EconWPA.
    6. Jane Sneddon Little & Giovanni P. Olivei, 1999. "Why the interest in reforming the International Monetary System?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 53-84.

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