In Asia, there were widespread failures of supervision and regulation, including the failure to enforce limits on lending to individual entities, to appreciate the implications of over-reliance on potentially changeable short-term sources of funding, to evaluate repayment risk on a timely basis, and to react quickly as problems emerged. In industrial countries, it was a widespread misassessment of counterparty risk.
Whether lulled by the collateral provided for credit exposure by each daily marking to market or the lofty reputation of the principals of the firm, counterparties failed to provide an effective check on the leverage of LTCM. That said, we should appreciate that in the United States and Europe, bank supervision and regulatory capital standards worked well in protecting the banking system.