Their theory is basically as follows: Because banks have so much leverage, they contract their lending by a multiple of their credit losses in order to restore their balance sheets. The resulting contraction in bank lending then leads to a substantial decline in aggregate spending, because bank loans cannot be replaced by credit from other sources.
There were some similarities but also important differences, not least that the Mexican crisis required restructuring of sovereign debt, whereas in Asia the problem was private debt. Nonetheless, Ito argues that important lessons that could have been drawn from the Mexican experience were not applied in the Asian crisis.