Editorial: Korean rescue is only a start
On December 22, William McDonough, chairman of the Federal Reserve Bank of New York, summoned the heads of the six biggest banks in the US to a meeting in his fortress-like Federal Reserve building on Liberty Street. With the holidays looming, not all the banks were able to send their chairmen. But it was a pretty high powered group that assembled some hours later: JP Morgan chairman Douglas Warner; William Harrison, vice-chairman of Chase; George Vojta, vice-chairman of Bankers Trust; J Carter Bacot, chairman of Bank of New York; Richard Bloom, senior vice-president at Bank of America; and Alan McDonald, executive vice-president of Citibank. On the agenda was Korea.
The bankers attending that first meeting didn't talk much. They listened. The news was grim. Korea was bleeding more than $1 billion a day in liquidity and hard-currency reserves were below $6 billion. The banks were urged to maintain credit lines to Korea. They were told that it was in their own interest to maintain lines. They were warned that a debt moratorium in Korea would pose a systemic risk to the world financial system because of the high exposure of Japanese banks to Korea.