Unfolding the spatial architecture of the East Asian financial crisis: the organizational response of global investment banks

Abstract

The East Asian financial crisis had a major impact on the regional operations of banks, and in particular investment banks. As the financial crisis deepened during 1997 and 1998, numerous European and North American banks began to restructure their organizational capabilities in capital markets, foreign exchange, securities, and project finance, as they became exposed to bad debts and reductions in the volume of trading in the region's financial markets. Banks managed the risk and uncertainty of the financial crisis by downsizing employment levels in order to reduce fixed costs in the region. Unfortunately, the plight of the Asian banks was far worse than their non-Asian counterparts, not least because they could not offset major losses in the region against profits generated in other regions. In this paper, we specifically explore the organizational and employment change in investment banking to investigate the wider political economy of the crisis, and its effect upon the global financial system. Following a detailed theoretical re-reading of the crisis, which centres on the `missing geography' that sustains the operation of the global financial system, we focus upon organizational and employment change in investment banking. We suggest that the Asian financial crisis affected the global financial architecture of the region, and that investment banks, being fluid, flexible, and responsive organizations, were able to react very quickly to the crisis, as if it were just one more event in the continuous (mal)functioning of the capitalist system.