ASIAN Financial Crisis 1997

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(a)

Introduction

The financial crisis or bank crashes are not a new phenomenon; it could be impairing and harming the whole economy of certain countries and even affect the world wide economy in short period of time. In recent history, the world wide economy has been shock by several financial crisis. This show that the stability of the financial market is weak and the world still hard to prevent it to occur after undergo various financial crises in previous years. Financial crisis rarely happen in the last four decades, there’s 120 systemic banking crisis since the early 1970 (Leaven and Valencia, 2008).

The most recent serious financial crisis was begun in August 2007, the origin of this mortgage crisis was in United State and it sent a wave of fear around world financial market. This financial crisis is the worst cases since the Great Depression 1930s and it causes a critical depression and recession in United State and even affecting virtually the entire global economies and financial market. According to McKinsey’s Mapping Global Financial Markets (Oct 2008), worldwide financial assets increase from 12 trillion USD in year 1980 to 196 trillion USD in year 2007. However, the worldwide financial assets, economy and other industry have shrink rapidly or affected during the mortgage financial crisis.

The financial sector and the government might spend trillion of dollars to rehab or reconstruct in order to stabilize and keep banks and other business afloat. It could takes a certain period of time to recover the market after the crisis occurred, including a partial recovery in stock market. Also, they will figure out the causes of financial crisis or bank crashes in order to avoid the crises happen again in the coming days.

The causes of banks crashes / financial crises

Credit Bubble
There are three main categories to possibly explain the term credit bubble: global capital flows, the reprising of risk and monetary policy

1. Global Capital Flows

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