IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Financial Liberalisation and the South Korean Financial Crisis: Some Qualitative Evidence

  • Kevin Amess
  • Panicos Demetriades

    ()

This paper provides a novel analysis of the South Korean financial crisis drawing on the findings of a unique survey of IMF/World Bank officials and South Korean economists. The survey reveals that over-optimism and inadequate recognition of financial risks inadvertently led to excessive risk taking by Korean financial intermediaries. It also indicates that the sources of over-optimistic assessments of East Asian economies, including Korea, were mainly to be found outside East Asia, including the IMF, the World Bank, western media and analysts. Weaknesses in risk management were the result of (i) lack of expertise in relation to handling the risks associated with capital flows, and (ii) disincentives to manage risks emanating from a relatively successful history of government provided safety nets for both industry and banking. Financial liberalisation widened risk-taking opportunities, by allowing lending to companies outside Korea. It also created additional disincentives for managing risk by intensifying competition and eroding bank franchise values. Finally, weaknesses in prudential regulation allowed bank portfolios to become much riskier, importantly in terms of maturity mis-matches between dollar-denominated assets and liabilities. The liquidity crisis, which followed the re-assessment of the South Korean economy by international lenders in late 1997, triggered a full-blown financial crisis because of the absence of an effective international lender of last resort.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/econ01-3.pdf
Download Restriction: no

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 01/3.

as
in new window

Length:
Date of creation: Mar 2001
Date of revision:
Handle: RePEc:lec:leecon:01/3
Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
Phone: +44 (0)116 252 2887
Fax: +44 (0)116 252 2908
Web page: http://www2.le.ac.uk/departments/economicsEmail:


More information through EDIRC

Order Information: Web: http://www2.le.ac.uk/departments/economics/research/discussion-papers Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Demetriades, Panicos O. & Luintel, Kul B., 2001. "Financial restraints in the South Korean miracle," Journal of Development Economics, Elsevier, vol. 64(2), pages 459-479, April.
  2. Marcus H. Miller & Lei Zhang, 1999. "Sovereign Liquidity Crisis: The Strategic Case for A Payments Standstill," Working Paper Series WP99-8, Peterson Institute for International Economics.
  3. McKinnon, Ronald I & Pill, Huw, 1997. "Credible Economic Liberalizations and Overborrowing," American Economic Review, American Economic Association, vol. 87(2), pages 189-93, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lec:leecon:01/3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mrs. Alexandra Mazzuoccolo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.