Krugman used the Bernanke-Gertler model to explain the Asian Crisis. This model implies that macroeconomic shocks am decrease credit creation by reducing firms' creditworthiness or by eroding hank capital. Foreign banks in Indonesia should he less likely to restrict credit following macaroeconomic shocks than domestic banks because they employed better risk management practices, they were less vulnerable to disintermediation, and their customers were largely hedged. Thus foreign banks were used as the control group. Wt1 found that interest and exchange rate shocks reduced hunk capital and bunk lending more greatly in domestic batiks than in foreign banks. This indicates that the crisis curtailed the loan supply in Indonesia, forcing firms to reduce spending and output.