The Role of non-bank financial intermediaries in propagating Korea's financial crisis

Click on the DOI link to access the article (may not be free).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