It has been generally accepted that many of the worst-afflicted economies had underdeveloped debt markets and, as a result, an over-reliance on banks as the primary vehicles for financing. One consequence of this, as noted in a report by the BIS, was that the lack of a well-developed domestic debt market meant that Asian banks which had a mainly short-term deposit base found it difficult to hedge long-term lending. Most Asian banks typically tried to limit apparent maturity risk on their respective balance sheets by lending at floating rates to long-term borrowers. However, this provided illusory protection to the extent that it made banks complacent to the fact that sudden, sharp and sustained interest rate increases which occurred during the speculative attacks on their respective currencies rendered many long-term borrowers insolvent thus transforming interest rate risk into credit risk.

It might be argued that, in addition to the above, an alternative channel of financing provided by a well developed domestic debt market would also have decreased the probability of sudden reversals of capital flows as these debt markets would have ensured that any initial surge in capital flows would have been more effectively intermediated and deployed into projects and/or instruments whose maturities were better-matched.