Preface
This is my third book dealing with bank failures. The first book, Targeting Fraud: Uncovering and Deterring Fraud in Financial Institutions ( McGraw-Hill, 1995), examined domestic and international banks that failed as a result of massive fraud. The second book, Bank Failures in the Major Trading Countries of the World ( Quorum Books, 1998), was an outgrowth of my research when I was a visiting scholar at the Office of the Comptroller of the Currency in 1997. Part of that research was to determine why banks in the G-10 countries failed during the 1980 to 1997 period. Defaults of real estate loans stood out as being the most common cause of failures, and fraud was a distant second. As I was finishing that book in July 1997, Thailand devalued its currency. That act marked the beginning of crises in other Southeast Asian countries and Russia that impacted the rest of the world. It was feared that the contagion would spread to Brazil and then to other Latin American countries. In the United States, stock prices declined sharply in July and August 1998, but they recovered in the months to come. Long Term Capital Management, a hedge fund, almost failed and had to be bailed out by commercial banks and investment banks with the aid of the New York Federal Reserve Bank. Several other hedge funds did fail, and some major banks had huge trading losses from the dealings in foreign currencies. There was a flight to quality investments away from risky bonds and mortgage debt, and the fear of a credit crunch. Intervention by the International Monetary Fund in the crises was cheered by some and strongly criticized by others. The Federal Reserve and other central banks cut interest rates to bolster their respective economies. In December 1998, at the time this is being written, it appears that the worst is over, and that the world economy is not going to collapse, but the jury is still out. Indonesia, Malaysia, Russia, and other countries are in a weakened state, and it would not take much to push them over the brink into a deep recession.

Growth in Southeast Asia was hailed as an economic miracle until it came to a screeching halt in July 1997. No one that I am aware of predicted the crises that followed or the speed at which events occurred. That raises the obvious questions of why no one saw those dark storm clouds on the horizon, why the crises occurred, and what can be done to prevent them in the future. This book provides some insights into those issues, but you will not find all of the answers here. The book is divided into three parts. Part I provides an overview of why banks fail. Part II examines the crises in selected countries. These countries are Thailand, Indonesia, South Korea, Russia, and Argentina. Information about crises in other countries was not sufficient to include here. Part III deals with bank regulatory issues from an international perspective.