Abstract: Chapters 9 and 10 were written for the Second Edition of the book in mid 1994. This chapter seeks to provide further evidence on the importance of the mechanisms of financial fragility and instability, and of the appropriateness of the framework for analysis provided in the book itself, based on experience over the recessionary period of 1990–3. This chapter is structured as follows: in the first section, we assess experience of financial fragility over 1988–93, using as material various indicators at a macroeconomic level. Following the analysis of Ch. 4, a general pattern of financial fragility is sketched and traced in the data for a number of countries. In this context, particular focus is laid on the interrelation between asset prices and credit, as well as the potential importance of moral hazard and adverse selection. The second section complements this analysis by sketching the results of a number of more detailed studies of issues in financial fragility that have been made at a national level, and which are nonetheless considered to have a broader applicability. In the third section, four further periods of systemic risk, namely the banking crises in Finland, Sweden, and Japan, and the collapse of activity in the ECU bond market in 1992, are analysed in the light of the framework for analysis developed in Chs. 5 and 7. The degree to which they confirm the generality of the phenomena outlined earlier in the book is considered in a final part of this section.

Keywords: adverse selection, asset prices, banking crisis, credit, financial fragility, Finland, Japan, moral hazard, recession, Sweden,