The Role Of Banks In The Korean Financial Crisis Of 1997: An Interpretation Based On The Financial Instability Hypothesis

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This paper shows the fundamental role of Korean banks in the bursting of South Korea's financial crisis in 1997. It argues that Minsky's financial instability hypothesis can be used as an analytical tool to explain the unfolding of the Korean financial crisis. However, some changes in the original Financial Instability Hypothesis (FIH) are necessary to account for the institutional and structural changes of the last decades. At the core of Minsky's FIH lies the process of investment and the way the ownership or operational control of capital assets are financed by companies.