Malaysia's banks should stay out of the bond market, says CDRC chief

Malaysia’s bond market imploded in 1998. The problems began when the banks began helping each other out by providing guarantees on bonds, without stress-testing the impact of the contingent liabilities they were taking on their balance sheet. Then the financial crisis hit. A number of companies defaulted on their short-term and long-term papers. Smaller banks began defaulting, too, when they realized that they would blow a massive hole in their capital if they tried to meet their guarantees. Everyone ran for cover. Banks started calling in their credit facilities; those holding papers started selling. The net effect: a frozen market that Malaysia’s regulators had to fix while simultaneously administering to a cashflow crisis among the banks and conglomerates.