As external financing disappeared for Asian countries with sizeable current account deficits, domestic absorption had to be reduced by whatever amount necessary to respect underlying accounting identities. As trade credit dried up for some countries, the offsetting competitive advantages provided by a lower currency value could not be immediately exploited. As for the contribution of the international markets to contagion across markets and countries, there is little doubt that financial markets are now much more inter-related than before. But it is not clear whether this is a good or bad thing. Moreover, as consolidation in financial services industry leads to a smaller number of firms exercising greater influence over a diverse set of markets, the chances of spillovers that are unwarranted and potentially dangerous also increase.
Financial instability has thus a number of manifestations - volatility, misalignments and contagion.
Each may have a number of underlying causes, and these must be known before problems can be rectified. But macro-economic forces, domestic and international, have also contributed to recent, and perhaps some prospective, difficulties. But deficiencies in the operation of the financial systems, domestic and international, have had an unwelcome influence. It is in this view that the idea of a global international super-regulator has been advanced by some. Arguments supporting this include the globalization of financial markets, breakdown of sectoral distinctions, growing integration and complexity of international financial markets and need for efficient information sharing by all relevant bodies.