The capacity of financial institutions and corporations to manage risk, and of the supervisors to enforce better management, were far too weak. The markets required to manage such risks – to hedge foreign currency exposures, for example – were small or non-existent. More generally, capital markets were underdeveloped, especially local-currency denominated ones.
Hence, not only were the risks concentrated in the banking system, but when the banks could no longer extend credit there was no other channel to make up the difference. As the countries concerned and the international community came to grasp these lessons, the nature of the debate changed.