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Dangerous Markets: Managing in Financial Crises

Dangerous Markets: Managing in Financial Crises

Dominic Barton, Roberto Newell, Gregory Wilson

ISBN: 978-0-471-42973-9

Oct 2002

320 pages


Product not available for purchase


A corporate guide to crisis management in volatile financial markets

Current financial crises in Argentina, Japan, and Turkey are being played out on the front pages of newspapers, and these are just the most recent financial crises that have rolled across the globe in the last decade and whose far-reaching impact hurts business around the world. Dangerous Markets: Managing in Financial Crises recognizes that no global corporation or financial institution can afford to ignore the potential of a financial storm and will help top management and financial professionals navigate through this often disastrous maze.

While many books discuss financial crises and their ramifications, none has presented an action plan for managing these storms—until now. Dangerous Markets: Managing in Financial Crises presents a method that allows executives and financial professionals to recognize the warning signs of a financial crisis and act appropriately before the situation spirals out of control. Based on years of research and practice in cleaning up the mess, McKinsey consultants Barton, Newell, and Wilson reveal the warning signs of potential financial catastrophes and provide unique principles that can be followed to shape and manage a strategy for survival.


Why Manage Financial Crises Proactively?

Why We Wrote Dangerous Markets.


CHAPTER 1: Introduction to Dangerous Markets.

Financial Storms Are Destabilizing.

Financial Crises Can Be Understood, Anticipated, Managed, and Prevented.

What This Book Is and Is Not.

Who Needs to Read Dangerous Markets?

Part I: Understanding Financial Crises.

Part II: Earning the Right to Win.

Part III: Managing Unique Banking Risks.

Part IV: Building for the Future.

PART I: Understanding Financial Crises.

CHAPTER 2: Recognizing New Global Market Realities.

Increasing Risk of Financial Crises.

Why Financial Crises Are on the Rise.

You Can Run, But You Can't Hide From Crises.

Looking Ahead.

CHAPTER 3: Using Crisis Dynamics to See Growing Risks.

The Chronology of a Crisis.

The Dynamics of a Financial Crisis.

The Corporate Sector: Assessing Value Destruction.

The Financial Sector: Banks in Distress.

Understanding the Impact of Macroeconomic Catalysts, Foreign Funding, and Asset Bubbles.

Conclusions and Outlook for Future Crises.

Appendix 3.1: Ten Warning Signs of a Financial Crisis.

Appendix 3.2: Estimating Value Destruction in the Economy.

Appendix 3.3: Why Corporate Sectors Underperform in Crisis Economies.

PART II: Earning the Right to Win.

CHAPTER 4: Managing the First Hundred Days.

Taking Five Tactical Steps When a Crisis Hits.

Developing a Crisis Management Approach.

Managing the CEO Agenda.

Appendix 4.1: Painting the Picture of a Financial Crisis.

Appendix 4.2: How Companies Can Strengthen Funding Before a Crisis.

Appendix 4.3: Using Scenario Planning in Financial Crises.

CHAPTER 5: Capturing Strategic Opportunities After the Storm.

Recognizing Significant Opportunities in a Crisis.

Moving from Boundaries to Greater Degrees of Freedom.

Executing Successfully to Capture Crisis Opportunities.

Appendix 5.1: Leveraging Strategic Opportunities in Financial Crises: The Successful Story of NCNB.

PART III: Managing Unique Banking Risks.

CHAPTER 6: Driving Successful Bank Turnarounds.

Ensuring Turnaround Success: Seven Management Actions.

Mellon Bank's Successful Turnaround.

Christiana Bank's Successful Turnaround.

Filanbanco's Failed Turnaround.

Government Stewardship of Troubled Banks.

Government's Role in Bank Turnaround Strategies.

Appendix 6.1: Building a Rationale for Official Support in a Financial Crisis.

CHAPTER 7: Minimizing Costs Through NPL Recovery Excellence.

Developing World-Class NPL Recovery Capabilities.

Special Issues Raised When NPLs Are Managed by Governments.

Management Lessons: Good Banks/Bad Banks in Scandinavia.

PART IV: Building for the Future.

CHAPTER 8: Strengthening System Safeguards.

Moving to Global Standards for Corporate Governance.

Adopting Better Accounting Standards.

Developing Capital Markets.

Resetting Regulatory Regimes.

Building an Effective Legal Foundation.

Appendix 8.1: Sixteen Elements of Good Corporate Governance.

Appendix 8.2: Singapore's Development as an International Financial Center.

Appendix 8.3: The Discipline of the Market for Corporate Control: Issues for CEOs.

CHAPTER 9: Designing a New, Market-Driven Financial Architecture.

Recognizing the Limitations of Current Standards and Approaches.

Enhancing the Private Sector's Role in Setting Standards to Reduce the Risk of Future Crises.

Appendix 9.1: FSF Compendium of Standards.



" intriguing methodology to spot pre-crisis warning signs...some practical solutions..." (Financial Times, 30 December 2002)

"offers a practical guide for all major participants in a financial crisis... the book draws helpful lessons from the numerous financial crises of the past two decades, including U.S. domestic experience. It usefully reminds readers that crises provide opportunities for shedding out-of-date practices - and for making money - as well as impose economic costs." (Foreign Affairs, March 2003 (United States))

" intriguing methodology to spot pre-crisis warning signs...practical solutions as to how companies and countries can best deal with financial crashes..." (Financial Times, December 30, 2002 (United Kingdom))

"very popular in German banking circles at the moment. It deals with the warning signals relating to financial crises, the momentum associated with them, and ways of dealing with them... [It] provides a riveting insider report on system crises in newly industrialized countries and financial difficulties in the banking sectors of G7 states." (Handelsblatt, February 21/22, 2003 (Germany))

"a hefty chuck of valuable intelligence that deserves the hours of serious study it demands of a reader. The authors offer general observations on past crises, then provide detailed analyses on strategies that succeeded and failed in the past. They focus on the performance of individual company managers and pepper the book with lists of dos and don'ts." (Far East Economic Review, February 27, 2003 (Asia))

"The timing of this book couldn't be better. As political crises continue to escalate globally, financial crises will likely follow. And companies need all the help they can get." (Business Finance, February 2003 (United States))

"The authors...cite five boundary conditions that are changing in times of crisis.... The five "degrees of freedom" in volatility are: regulatory regimes; competitive landscape; customer behavior; organizational capacity for change; and social values. It is the ability of managers to grasp the impact of these changes, prompted by the crisis, and then turn them into opportunities that leads to many successful stories of companies highlighted in the book." (Jakarta Post, October 12, 2002 (Indonesia))

"Critics rate the book highly, noting while many books discuss financial crises and their ramifications, none has presented an action plan for managing them. The book presents a method that allows executives and financial professionals to recognize the warning signs and act appropriately before the situation gets out of hand...also details best practices that help corporations weather crises." (Business World, October 15, 2002 (Philippines))

"highly readable and actually a quick read...a management toolkit, with all the tools neatly arranged and ready on hand when the need arises. On an unlit, stormy night when the manager's company suffers a flat tire, that manager would surely wish he'd bought this handy-dandy toolkit." (Business World, October 16, 2002 (Philippines))

"Dangerous Markets concludes that financial crises like the one that swept Asia have become more frequent in the past decade or so and will become more frequent as developing economies enter the global economy...
"So what should managers and investors do if they see signs of an imminent crisis? The authors point to companies that have prospered in the past by seeing crisis as an opportunity to gain on less well-prepared competitors.... What these examples have in common is that managers took advantage of the situations rather than adopting a defensive posture to crisis conditions." (Wall Street Journal, October 14, 2002 (Asia))