On the heels of earlier problems in Thailand, Indonesia, and other Asian countries, Russia’s default in August of last year caused investors worldwide to reassess risks and their views about conditions in emerging markets. A so-called “flight to quality” ensued, leaving still more turmoil in its wake.
What can we learn, then, from this experience in terms of risk management practices and in supervising and regulating banks? For one, the world’s a dangerous place. That’s hardly news. In terms of financial markets, though, the experience illustrated quite vividly how closely linked world markets are today and the types of issues market participants and policymakers need to consider.