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Preventing Currency Crises in Emerging Markets$
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Sebastian Edwards and Jeffrey A. Frankel

Print publication date: 2002

Print ISBN-13: 9780226184944

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226185057.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 02 August 2021

Domestic Bank Regulation and Financial Crises Theory and Empirical Evidence from East Asia

Domestic Bank Regulation and Financial Crises Theory and Empirical Evidence from East Asia

Chapter:
(p.507) 11 Domestic Bank Regulation and Financial Crises Theory and Empirical Evidence from East Asia
Source:
Preventing Currency Crises in Emerging Markets
Author(s):
Robert Dekle, Kenneth Kletzer
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226185057.003.0012

This chapter covers the banking relationships that have been shown in the Asian financial system. It concentrates on the link between foreign capital inflows, economic growth, and subsequent banking crises under a fixed exchange rate. Malaysian, Taiwanese, and Singaporean firms were not dependent on domestic banks, because they actively tapped bond and equity markets. The theoretical model demonstrates that banking and currency crises coincide and inevitably occur in the absence of effective prudential regulation. After a financial crisis, the model shows that output contracts and that the growth rate of output is lower in recovery than it was before the crisis. Korea and Thailand had the strongest link between capital flows and lending, whereas capital controls broke the strong connection in Malaysia in 1994. The link between foreign capital inflows and bank lending fits Malaysia except under the imposition of capital controls; this supports the model's implications.

Keywords:   banking, Asian financial system, foreign capital inflows, economic growth, Malaysia, Taiwan, Singapore, Korea, Thailand, bank lending

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