Emerging market banks in bad shape, a regional problem or a global crisis?

As there are many warnings on emerging market banks' financial positions, the large institutions must already be aware the problem existing in emerging market banks, so if there is a collapse in the emerging market banking system, it is unlikely to lead to a global crisis. However, a wider spread among emerging economies is highly likely that even some emerging market banks may have relatively healthy finance, they could be hit hard by the crisis.

Bank crises are very likely lead to economic crises, as banking could be seen as the heart of the economy. Once the bank crisis happens, the emerging economy will also be in a deep trouble. However, if the emerging economic crisis is going to spread in a global scale is questionable. The developed world depends on their imports. Although without closing the export manufactures banks can gradually collect their loans, it is the banks' best interest to force manufactures to file bankruptcy so banks can collect big amounts of assets in a much shorter term. Therefore, the imports for the developed world are reduced sharply. Though it can help to create jobs in the developed economies, it increases the costs of producing such goods and services which usually rely on imports. The inflation rate in the developed world will increase.

The inflation could be a good thing, as well as a bad thing. The positive side is that the inflation can reactivate the inactive money holding in the bank accounts, more cash flowing into the economy can stimulate economic growth. The negative side is that the inflation could get out of control once an enormous amount of cash suddenly flood into the market.

Overall, I think the emerging market bank crisis will remain in the emerging market and the inflation in the developed world could be pushed higher by the shock in emerging markets.