Regulatory Lessons from the Rescue Efforts

Abstract

At the time of writing, bailout efforts by the global authorities to contain the economic damages of the subprime crisis are still ongoing and evolving. But the development hitherto has offered significant insight for discussing some regulatory lessons that can be learned. Only since October 2008 have we seen a big change in the western authorities’ policy attitude — from disorganised to concerted efforts — towards handling the subprime crisis. But there have been no collective efforts in Asia, at least not to a similar extent as in the western world, to deal with the crisis, mainly because there is no such need to do so. The Asian response aims at fending off the economic shocks stemming from the western world’s financial crisis via trade links. Hence, the response is basically of a macro policy nature and includes liquidity injection, deposit guarantees, and interest rate and bank reserve requirement cuts. The different responses from the different authorities have offered valuable regulatory lessons for dealing with a significant financial shock like the subprime crisis. This crisis is unprecedented, as there have been no similar previous incidents that have caused such a devastating impact on confidence in the global financial system.