ABSTRACT
Hy Minsky's analysis is based on the sustainability of cash flows generated by the composition of assets and liabilities on company balance sheets. Minsky's original analysis of the passage from financial fragility to financial instability is based on a change in domestic monetary policy or the persistence of stable domestic conditions. Minsky's extension of the process emphasises the fact that the rising credit risks that result are reflected on bank balance sheets in the form of increased charge-offs and a general decline in asset quality which will eventually place some banks in difficulty as their capital cushion is overwhelmed by loan losses, and a full fledged financial panic is set off. The normal scenario for a developing country financial crisis would involve domestic firms borrowing in foreign currency from foreign banks at interest rates which are reset at a short rollover period.
