A number of studies on the European economic integration have shown that an expansion of trade among a group of countries over time could lead to synchronization of business cycles across the members of the group. 1 Synchronization of business cycles would be more pronounced, if intra-industry trade accounts for most trade. This finding suggests that regional trade integration between similar industries could then develop conditions favorable for establishing a common currency area for the regional trading partners. The ongoing trade liberalization has contributed to a substantial increase in intra-regional trade in East Asia, raising expectations that the continuing trade integration would generate market pressures for policy coordination for stable exchange rates of regional currencies and eventually for adopting a common currency for the region. With the spread of liberal ideology of the Washington consensus, many countries in East Asia, in particular more advanced ones including Thailand, Indonesia, and Malaysia, have been reducing restrictions on capital account transactions and barriers to entry of foreign financial institutions into local markets and to trade in financial services since the early 1990s (Eichengreen and Mussa 1998). After the 1997-98 crisis, the speed and scope of penetration of foreign financial institutions, except for Malaysia, has increased in East Asia. 2 In removing restrictions on entry, these East Asian countries have been motivated by their desire to build efficient and stable financial systems resilient enough to forestall future crises. Befitting an open foreign trade and investment regime and according to the IMF (2000), the removal of entry restrictions have also been triggered by the need to help reduce the costs of restructuring and recapitalizing banks following a major crisis (p. 158). If indeed this was one of their objectives of liberalization, it appears few of the crisis countries in East Asia have succeeded in this regard.