Table of Contents

Global Shock, Risks, and Asian Financial Reform

Global Shock, Risks, and Asian Financial Reform

Edited by Iwan J. Azis and Hyun S. Shin

The growth of financial markets has clearly outpaced the development of financial market regulations. With growing complexity in the world of finance and the resultant higher frequency of financial crises, all eyes have shifted toward the current inadequacy of financial regulation. This book expertly examines what this episode means for Asia’s financial sector and its stability, and what the implications will be for the region’s financial regulation. By focusing on legal and institutional frameworks the book also elaborates on various issues and challenges in terms of how financial liberalization can maximize the benefits and minimize the risks of crisis.


Hyun Song Shin

Subjects: economics and finance, asian economics, financial economics and regulation, money and banking


The guiding theme of the chapters in this part of the book is that the procyclicality of the financial system provides an organizing framework for selecting indicators of vulnerability to crises, especially those that are associated with banks and financial intermediaries. In addressing the procyclicality of the financial system, it is useful to distinguish between the core and non-core liabilities of the banking sector. Core liabilities can be defined as the funding that the bank draws on during normal times and that is (mainly) sourced domestically. When banking sector assets are growing rapidly, the core funding available to the banking sector is likely to be insufficient to finance the rapid growth in new lending. This is because retail deposits grow in line with the aggregate wealth of the household sector. In a lending boom when credit is growing very rapidly, the pool of retail deposits is not likely to be sufficient to fund the increase in bank credit, and other sources of funding must then be tapped. The state of the financial cycle is thus reflected in the composition of bank liabilities.