ADBI series on Asian Economic Integration and Cooperation
Edited by Masahiro Kawai, David G. Mayes and Peter Morgan
The 1997–1998 Asian financial crisis highlighted several shortcomings in Asian financial markets, most notably the underdevelopment of domestic bond markets and deficiencies in corporate governance, transparency and financial regulation. Since then, Asian financial markets have made considerable progress in both development and regulation. Asian markets have now reached levels of development common in other economies with similar income levels. Markets are also becoming more integrated regionally, although not near the levels prevailing in Europe. Some of these changes have been the result of important initiatives undertaken to remedy deficiencies brought to the fore by the 1997–1998 crisis, including the Asian Bond Markets Initiative and the Asian Bond Fund project. The global financial crisis of 2007–2009 posed a new set of challenges for Asian economies, while highlighting a lack of progress in some areas since the Asian financial crisis. This time the crisis originated in the developed economies – primarily the United States – that had large and sophisticated financial systems, but nonetheless allowed the build-up of systemic financial risks. Asian economies, for the most part, were not directly involved in the crisis, and were hit mainly by falls in exports and a loss of liquidity. Their economic and financial fundamentals had improved substantially since the time of the Asian financial crisis. Their financial systems were still relatively underdeveloped in terms of their reliance on sophisticated financial products such as collateralized debt obligations and credit default swaps, while their financial regulators were much less influenced by notions of self-regulating markets,...