... a financial crisis. (Stiglitz, 1998, pp.25) It is easy see that the seeds of the banking crisis of 1997-1998 were sown earlier in the 1990s, when improvements in the access to financial markets and apparent high returns on investments caused a surge of capital inflows into many emerging markets. The Asian countries that are most vulnerable to a reversal of capital inflows are those with weak fundamentals, for example a weak banking system, or an overvalued real exchange rate. In another words, a large proportion of foreign capital was in the form of short-term, foreign currency interbank. This capital inflow was not only easily reversed, but the risks were concentrated in the developing countries' banking systems. On the other hand, the Asian crisis was the legacy of bad lending and investment practices that were fostered by an environment of relationship lending, disincentives to fully monitor risk, and inadequate supervision and ...

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