Financial fragility and Crisis Union in the Asia-Pacific region

We examine whether core ASEAN+3 countries might be interested in joining a financial "crisis union," allowing for the role of uncertainty by constructing a stylized real options model of the decision problem involved. We calibrate that model by proxying financial fragility with commonly used bank asset ratios and observe that, according to our criteria, a wider financial crisis union might be more attainable the more encompassing that grouping is; however, our results also reinforce the common perception of pervasive, possibly prohibitive, heterogeneity in these countries' banking and financial systems.