Private Inflows when Crises Are Anticipated: A Case Study of Korea

Dooley, Michael P.; Shin, Inseok

doi:10.1017/cbo9780511572159.013

Cited by 22 publications

(22 citation statements)

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“…Excessive risk‐taking by banks may well lead to bank runs and financial panic. Dooley and Shin (2000) suggest that when the contingent liabilities of the government are equal to the government’s assets, competition amongst bank depositors and creditors will mean that the insurance option is exercised. Thus, investors’ moral hazard and a desire to avoid losses cause the attack.…”

Section: Deposit Insurance and Moral Hazardmentioning

confidence: 99%

“…Dooley and Shin (2000) suggest that in Korea liberalisation reduced the franchise value of the banking system, exposing weak balance sheets to competitive pressures that promoted riskier behaviour by banks. Increased riskiness of investor portfolios may also lead to a decline in franchise values (Dooley, 2000). Korean banks were replacing riskless assets with riskier securities that were exposed to greater price changes.…”

Section: Financial Liberalisation Competition and Moral Hazardmentioning

confidence: 99%

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Financial Liberalisation and the South Korean Financial Crisis: An Analysis of Expert Opinion

Amess

Demetriades

2010

World Economy

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This paper provides a novel analysis of the South Korean financial crisis drawing on the findings of a unique survey of IMF/World Bank and South Korean experts. The survey reveals that over-optimism and inadequate recognition of financial risks inadvertently led to excessive risk-taking by Korean financial intermediaries. It also indicates that the sources of over-optimistic assessments of East Asian economies were mainly to be found outside East Asia and included the Bretton Woods Institutions themselves, Western media and analysts. In Korea, weaknesses in risk management were the result of (i) lack of expertise in relation to handling the risks associated with capital flows, and (ii) disincentives to manage risks emanating from a relatively successful history of government-provided safety nets for both industry and banking. Financial liberalisation widened risk-taking opportunities, by allowing Korean financial institutions to both borrow from and lend to institutions outside Korea. It also created additional disincentives for managing risk by intensifying competition and eroding bank franchise values. Weaknesses in prudential regulation allowed bank portfolios to become riskier, especially in terms of increased liquidity risk as a result of maturity mismatches between dollar-denominated assets and liabilities. The liquidity crisis, which followed the re-assessment of the South Korean economy by international lenders in late 1997, triggered a full-blown financial crisis because of the absence of an effective international lender of last resort. Copyright 2009 Blackwell Publishing Ltd. Journal compilation 2009 Blackwell Publishing Ltd.

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Section: Deposit Insurance and Moral Hazardmentioning

confidence: 99%

Section: Financial Liberalisation Competition and Moral Hazardmentioning

confidence: 99%

Financial Liberalisation and the South Korean Financial Crisis: An Analysis of Expert Opinion

Amess

Demetriades

2010

World Economy

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“…The study by Dooley and Shin (2001) points out that a major contributing factor to the financial crisis in South Korea in 1997 was the failure on the part of the Bank of Korea to regulate the consolidated balance sheet of the Korean banks (taking into account the foreign currency deposits in their overseas bank branches). As a result, there were gross under-estimates of Korea's external debt position on the part of their ministry of finance.…”

Section: Iv2 Ministry Of Finance (Mof)mentioning

confidence: 99%

Banking and Financial Sector Reforms in Vietnam

Leung¹

2009

Asean Economic Bulletin

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“…Potential culprits include panic stricken foreign investors (Radelet and Sachs (1998)), hedge fund managers out to wreck the upstart Asian economies (Mahathir Mohammed in various speeches), corrupt corporate governance practices (Krugman (1998), Johnson, et al (1999, Pomerleano (1998)), bank moral hazard (Dooley and Shin (1999)), and inadequate financial infrastructure (Rajan and Zingales (1998)). But any reasonable theory should explain four features of the crisis, three of them well known, and one less well known.…”

Section: East Asiamentioning

confidence: 99%

Banks, Short Term Debt and Financial Crises: Theory, Policy Implications and Applications

Diamond

Rajan

2000

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Private Inflows when Crises Are Anticipated: A Case Study of Korea

Cited by 22 publications

References 0 publications

Financial Liberalisation and the South Korean Financial Crisis: An Analysis of Expert Opinion

Financial Liberalisation and the South Korean Financial Crisis: An Analysis of Expert Opinion

Banking and Financial Sector Reforms in Vietnam

Banks, Short Term Debt and Financial Crises: Theory, Policy Implications and Applications

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