Recent events in East Asia have highlighted the risks of financial structures in a financially
integrated world. This paper documents that the buildup of vulnerabilities in East Asia was
mainly the result of weaknesses in domestic financial intermediation, poor corporate governance,
and deficient government policies, including poor macro-economic policy responses to large
capital inflows. Weak due diligence by external creditors, in part fueled by ample global liquidity,
also played a role in building up vulnerabilities, but global factors were more important in
triggering the crises than in causing them. In spite of these policies and weaknesses, we argue,...