Most of the economies worst-afflicted by the crisis had recently undergone financial sector deregulation and liberalisation, and also capital account liberalisation. Some economists have argued that these attempts, which were aimed at enhancing the financial sectors of these economies, in fact exposed them to certain risks arising from the integration with the international financial markets when they were not prepared to face such risks.

The BIS suggests that, prior to deregulation and liberalisation, intermediation through banks was typically kept profitable by limits on allocation and the volume of bank lending and also interest rate ceilings on deposits. According to the Bank, deregulation and liberalisation however, saw banks operating in a more competitive environment where their interest margins narrowed significantly. In addition, quantitative limits on exposure to single clients and sectors were also relaxed, which led banks in some of these countries to become over-exposed to single borrowers and speculative sectors such as real estate.

Capital account liberalisation allowed domestic institutions access to the international capital market. While not bad in itself, it is argued that this can have adverse consequences if coupled with weak regulation. Economists have suggested that the experience in some jurisdictions revealed that deregulation and liberalisation without the requisite re-regulation resulted in excessive risk-taking and also encouraged an over-accumulation of short-term external liabilities by the banking and corporate sector.