The Role of non-bank financial intermediaries in propagating Korea's financial crisis
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William Miles. 2003. The Role of non-bank financial intermediaries in propagating Korea's financial crisis. Review of Pacific Basin Financial Markets and Policies 2003 06:01, 45-64
The Korean crisis has been analyzed for the causal role banks played through the "credit view". Non-bank lenders have grown more important than banks in providing loans, but their role in creating financial instability has been ignored. This paper fills this gap, and demonstrates that non-banks were an important source of dislocation. Moreover, these results offer a counter-argument to proposals for "narrow banking". Narrow banking would separate deposit taking and lending into two enterprises, hopefully reducing vulnerability to panics. The poor performance of non-bank lenders even relative to banks in the Korean episode casts doubt on this model.
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