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Financial Crisis in East Asia: Bank Runs, Asset Bubbles and Antidotes

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  • Marcus Miller
  • Pongsak Luangaram

Abstract

Was the East Asian crisis just a creditor panic with a mad scramble for liquidity that brought the banking system to its knees and the region's much-vaunted 'economic miracle' to a standstill? Or was the miracle indeed flawed by fundamental problems in asset prices and resource allocation? After a summary of the facts and an outline of various types of financial crisis, we conclude that the truth involves both factors, interacting in a vicious downward spiral. There certainly was panic among the creditors but it was triggered by genuine problems of overinvestment and overvaluation in emerging East Asian economies. Before turning to outline various approaches of crisis prevention and management and a brief account of the future prospects, we discuss how contagion can occur in environments where investors are poorly informed and each looks to the others for guidance. The paper ends with immediate steps that might help resolve the current crises; and with proposed reforms to the international monetary system to prevent a recurrence.

Suggested Citation

  • Marcus Miller & Pongsak Luangaram, 1998. "Financial Crisis in East Asia: Bank Runs, Asset Bubbles and Antidotes," CSGR Working papers series 11/98, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  • Handle: RePEc:wck:wckewp:11/98
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    Cited by:

    1. Crafts, Nicholas, 1999. "Quantitative economic history," Economic History Working Papers 22390, London School of Economics and Political Science, Department of Economic History.
    2. C. Dow, 1998. "The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 51(207), pages 371-386.
    3. C. Dow, 1998. "The importance of banks, the quality of credit and the international financial order: reflections on the present crisis in South East Asia," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 51(207), pages 371-386.
    4. Machiko Nissanke & Howard Stein, 2003. "Financial Globalization and Economic Development: Toward an Institutional Foundation," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 287-308, Spring.
    5. Paul Louis Ceriel Hilbers & Lisbeth S Zacho & Qin Lei, 2001. "Real Estate Market Developments and Financal Sector Soundness," IMF Working Papers 01/129, International Monetary Fund.
    6. Huff, W. G. & Dewit, G. & Oughton, C., 2001. "Credibility and Reputation Building in the Developmental State: A Model with East Asian Applications," World Development, Elsevier, vol. 29(4), pages 711-724, April.
    7. Shih, Michael S. H., 2003. "An investigation into the use of mergers as a solution for the Asian banking sector crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(1), pages 31-49.
    8. Jan Toporowski & Giovanni Cozzi, 2006. "The Balance Sheet Approach to Financial Crises in Emerging Markets," Economics Working Paper Archive wp_485, Levy Economics Institute.
    9. Herz, Christian & Neunert, Daniela & Will, Sebastian & Wolf, Niko J. & Zwick, Tobias, 2012. "Portfolioallokation: Einbezug verschiedener Assetklassen," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-01, University of Bayreuth, Chair of Finance and Banking.
    10. Yucel, Eray, 2011. "A Review and Bibliography of Early Warning Models," MPRA Paper 32893, University Library of Munich, Germany.
    11. Rahul Dhumale, 2000. "Capital Adequacy Standards: Are They Sufficient?," Working Papers wp165, Centre for Business Research, University of Cambridge.

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