International Banking Crises: Large-Scale Failures, Massive Government Interventions

International Banking Crises: Large-Scale Failures, Massive Government Interventions

International Banking Crises: Large-Scale Failures, Massive Government Interventions

International Banking Crises: Large-Scale Failures, Massive Government Interventions

Synopsis

The financial crises that began unexpectedly in Southeast Asia in 1997 spread rapidly around the globe, causing banks to fail, stock markets to plummet, and other newsmaking disruptions. Gup and his contributors examine these failures and crises in the main arenas where they occurred--Thailand, Indonesia, South Korea, Russia, Argentina--and provide some important answers to the critical questions these frightening events raised. The result is a readable, easily grasped study of issues relating to bank failure and the effectiveness of bank regulation, and important reading for academics and practitioners alike.

Excerpt

This is my third book dealing with bank failures. The first book, Targeting Fraud: Uncovering and Deterring Fraud in Financial Institutions (McGraw-Hill, 1995), examined domestic and international banks that failed as a result of massive fraud. The second book, Bank Failures in the Major Trading Countries of the World (Quorum Books, 1998), was an outgrowth of my research when I was a visiting scholar at the Office of the Comptroller of the Currency in 1997. Part of that research was to determine why banks in the G-10 countries failed during the 1980 to 1997 period. Defaults of real estate loans stood out as being the most common cause of failures, and fraud was a distant second. As I was finishing that book in July 1997, Thailand devalued its currency. That act marked the beginning of crises in other Southeast Asian countries and Russia that impacted the rest of the world. It was feared that the contagion would spread to Brazil and then to other Latin American countries. In the United States, stock prices declined sharply in July and August 1998, but they recovered in the months to come. Long Term Capital Management, a hedge fund, almost failed and had to be bailed out by commercial banks and investment banks with the aid of the New York Federal Reserve Bank. Several other hedge funds did fail, and some major banks had huge trading losses from the dealings in foreign currencies. There was a flight to quality investments away from risky bonds and mortgage debt, and the fear of a credit crunch. Intervention by the International Monetary Fund in the crises was cheered by some and strongly criticized by others. The Federal Reserve and other central banks cut interest rates to bolster their respective economies. In December 1998, at the time this is being written, it appears that the worst is over, and that the world economy is not going to collapse, but the jury is still out. Indonesia, Malaysia, Russia . . .

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