Preparing for the Next Financial Crisis

Financial cycles and crises 49

payments crises. It was only in the wake of the Asian crises of the late 1990s that

these currents tried to join forces, as several types of crises could occur simulta-

neously, amplifying their eects (Kaminsky and Reinhart, 1999):

− Banking crises and panics: they stem from a lack of coordination between

creditors, whether traditionally depositors (Northern Rock) or on the repo

market. Investors refuse to renew their nancing because they anticipate that

other participants will not renew their credit lines, thus precipitating the

bankruptcy of borrowers.

− Credit frictions and market paralysis, which amplify shocks in the presence

of moral hazard and adverse selection (Chapter 1). If, due to agency prob-