Beyond Group Lending

The previous chapter looked at the causes of bank failures; here, the emphasis shifts to

financial crises, often caused by the collapse of a bank or banks. The objective is to

explore the definitions, causes and consequences of financial systems in crisis. Section 8.2

looks at the controversies surrounding the different definitions of financial crises, and the

costs of resolving more recent crises. Section 8.3 conducts extensive reviews of the crises

in three South East Asian economies; those of Japan and Scandinavia are explored in

sections 8.4 and 8.5. While there are some similarities in the factors leading up to these

crises, the approaches taken to resolve them have been quite different. The choice of

countries is deliberate. It covers a continuum, from relatively underdeveloped, such as

Indonesia, to newly industrialised (Korea), to small open advanced economies, to the

second largest economy in the world. It shows that no country is exempt from crises and

their resolution can be complex and costly. The case of Long-Term Capital Management

is discussed in section 8.6, to provide another contrast - a non-bank financial institution,

the sudden collapse of which, some argue, threatened the world financial order, prompting

a lifeboat rescue organised by the US central banking authorities. Given the need for

intervention by central banks, other government agencies, the IMF (in the cases of