Table of Contents

Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia

Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia

ADBI series on Asian Economic Integration and Cooperation

Edited by Masahiro Kawai, David G. Mayes and Peter Morgan

In light of the experience of the global financial crisis, this book develops concrete recommendations for financial sector reform and regulation in Asian economies aimed at preventing the recurrence of systemic financial crises, improving the ability to manage and resolve crises, managing capital flows and promoting the development of Asian bond markets.

Chapter 10: The Role of the State in Managing and Forestalling Systemic Financial Crises: Some Issues and Perspectives

Charles Adams

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation

Extract

Charles Adams1 10.1 INTRODUCTION This chapter reviews recent state interventions in financial crises, with particular emphasis on the Asian financial crisis experience in the late 1990s and the current turmoil. Based on these experiences, it outlines a number of lessons for the state’s role in crisis management, while recognizing that the modalities of crisis resolution invariably differ across countries and crises. Section 10.2 reviews the official responses to the financial crisis that struck the region in the late 1990s and the ongoing global financial turmoil. For ease of exposition, crisis management is considered during the three key stages of any crisis – stabilization and containment, asset write-downs and absorption, and rehabilitation and normalization – with different tools and instruments at the forefront of each stage and different state entities in the driver’s seat. Section 10.3 outlines a number of broad lessons that can help guide crisis management and argues for expanding the tools available to involve the private sector in crisis resolution, creating procedures to allow for the orderly closure of systemically important financial firms, and integrating more closely ex ante and ex post systemic risk oversight. Finally, section 10.4 argues for the creation of high-level systemic risk councils (SRCs) in each country to oversee systemic risk in both tranquil and turbulent times and coordinate the roles of various state bodies, including the central bank. 10.2 FINANCIAL CRISIS MANAGEMENT The key features of the Asian financial crisis and the ongoing international turmoil have been extensively documented.2 Both episodes have raised major challenges...

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