Severely-weakened market intermediaries characterised the recent crisis among the worst-hit jurisdictions. Many of their problems were realised by the sharp and prolonged decline in asset prices. For one, plummeting prices eroded the value of securities pledged as collateral for margin loans. This led to a higher frequency of margin calls and forced-sales. Falling prices also aggravated the maturity-mismatch of their balance sheets. As a result, many East Asian jurisdictions reported that their market intermediaries had difficulty in maintaining minimum prudential requirements and in financing their daily operations and short-term obligations throughout the crisis. This would have made it difficult for them to conduct core businesses.

Many listed companies in the region were reported to have faced similar difficulties, especially those with a high exposure to foreign-exchange and interest-rate risks. These translated into higher operating and financing costs as well as bad debt. Moreover, many of the companies in the emerging markets are dependent on high import content for their business activities. As a result, the severe devaluation of currencies in 1997 had an adverse effect on the earnings of many companies due to the high import content of their activities.

In one jurisdiction, corporate profitability was severely affected with earnings per share (EPS) contracting by some 56% in the first quarter of 1997. By the second quarter of 1997, it had shrunk by 113%. For the entire year, the EPS of domestic companies contracted by 55%. Corporate financing activities also saw a sharp decline: the total value of equity offerings shrank by almost two thirds from 1996 to 1997 while the total value of bonds issued contracted by almost 60%. In another jurisdiction, corporate insolvency resulted in the default of 60 listed companies by the end of 1997.

Often, the financial problems experienced by market intermediaries and the corporate sector were aggravated by the large number of links between securities markets, the rest of the financial system and the wider economy. The collapse and subsequent mass-suspension of financial institutions increased the pressure on market intermediaries. For example, stockbrokers in one jurisdiction suffered a credit-squeeze after the suspension of domestic finance companies.

For more details of the effects and regulatory implications of the crises, and the full IOSCO report, please click here, "Causes, Effects and Regulatory Implications of Financial and Economic Turbulence in Emerging Markets" (1998)