Bank Fragility and International Capital Mobility

The last two decades were a period of fast international economic integration, as international trade flows and international flows of financial assets grew faster than the world economy (IMF (1997)). The globalization of national economies has become a much talked-about (if much less well-understood) phenomenon, often blamed for all the evils and credited for all the goods of the last two decades of economic experience. Among the evils often attributed to globalization, and particularly to increased international capital mobility, is the proliferation of financial crises that has afflicted a large number of countries, ranging from rich industrialized nations to poor "nonemerging" developing economies. Financial crises have involved various combinations of currency collapses, banking panics, sovereign and corporate debt crises. The disruptions brought about by these events have led to calls for the resumption of capital controls, for new international institutions to improve prevention and treatment of financial crises (a new "financial architecture"), as well as a reexamination of the national regulatory framework for financial institutions.