Abstract
Asian countries have done a great deal to improve their resilience to financial shocks and have come through the global financial crisis relatively unscathed, following the lessons of the 1997–1998 Asian financial crisis. However, Asian economies need to study carefully the lessons of the global financial crisis to identify what financial reforms can significantly help to reduce the likelihood and impact of future financial shocks (both external and internal) and enhance the ability of Asian economies to develop sources of domestic demand. This chapter reviews the lessons of the crisis, and how these might best be applied in Asia. It examines measures to improve Asian economies’ ability to prevent shocks from turning into crises and explores strategies to improve crisis management. Crisis prevention requires strengthening of both microprudential and macroprudential supervision, while crisis management requires effective preplanning of coordination and authorities. The chapter also examines ways to deepen regional financial integration, and considers issues related to financing SMEs which are critical to financially vulnerable sectors in most Asian economies.
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Notes
- 1.
Data for 2000 are not available.
- 2.
Gravity models assume that the main drivers of flows between countries relate to their economic size and proximity. If, after taking these and any other unusual features such as a common language into account, a pair shows a larger than expected flow, some abnormal level of integration is presumed.
- 3.
The 16 Integrating Asia economies are Brunei Darussalam; Cambodia; the PRC; Hong Kong, China; India; Indonesia; Japan; the Republic of Korea; Lao People’s Democratic Republic; Malaysia; Myanmar; the Philippines; Singapore; Taipei,China; Thailand; and Viet Nam.
- 4.
The ratio for intra-EU assets (liabilities) holdings was 61.7 % (62.3 %) in 2006.
- 5.
Given their comprehensiveness, however, the CAMELS ratings still offer the best chance of detecting a problem, provided that they are regularly updated and reviewed.
- 6.
The Economic Policy Coordination Meeting in the Republic of Korea is chaired by the President; the Financial Supervisory Commission is mandated to implement the Meeting’s recommendations. Kawai and Pomerleano (2009) describe the Indonesian, Japanese, Korean, and Malaysian schemes. Indonesia has introduced a Financial System Stability Forum, along lines similar to the Republic of Korea’s arrangements.
- 7.
Information on the structure of household finance is particularly critical, to gain a clear idea of the problems in the sector and how these might best be tackled.
- 8.
Incentives have been particularly perverse in many financial institutions with remuneration slanted toward short-run performance and upfront fees with little regard for the longer-term risks and return, thereby exacerbating and mis-pricing the risk.
- 9.
There are different types of short-selling and it is “naked” short-selling without any cover that has attracted the most criticism.
- 10.
They are also referred to as “funeral plans” or “shelf insolvency” (Wall 2012).
- 11.
The Squam Lake Working Group (2009) has suggested that such a debt for equity swap should be triggered only when there is a general crisis. If the problem is not system-wide, the individual institution could be subjected to the normal special resolution regime, as there will be other well-capitalized institutions in the market that could take on the troubled bank before or after failure.
- 12.
There is a difference between retail deposit guarantees and a blanket (sovereign) guarantee. The former is meant to stop local bank runs, the latter to prevent a currency run.
- 13.
The European Commission’s recent proposal for a pan-EU resolution framework (EC 2012) probably marks the most significant progress to date on this issue.
- 14.
See Chapter 3 for a discussion of the role of SMEs.
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* The Asian Development Bank recognizes China by the name People’s Republic of China.
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Mayes, D., Morgan, P., Lim, H. (2015). Deepening the Financial System. In: Kawai, M., Lee, JW. (eds) Rebalancing for Sustainable Growth. Economics, Law, and Institutions in Asia Pacific. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55321-2_6
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