My interest is more in the longer term implications for the financial systems of Asian countries, or indeed any others where the kinds of banking system weaknesses I have described are apparent. Here there is clearly a short term agenda closely related to the stabilisation programmes being put in place. It is vital to begin by identifying the institutions in particular difficulty and, within them, the problem loans. In some cases this will reveal institutions which must be closed or merged because their problems are too large for resolution. That in turn creates difficult questions on how those losses which will inevitably arise should be borne.
Some losses are inevitable, for shareholders, taxpayers and perhaps some depositors.
But in order to stabilise markets the process may well involve governments taking on poor quality assets in order to allow the creation of a recapitalised banking system with the capacity to support economic activity in the future. But, essential though all this short-term palliative activity is, it does little more than cauterise the wounds and does not necessarily guarantee that similar problems will not arise again in the future. So along with programmes to address current problems, work to secure structural reform and institution rebuilding must also begin. Of course there are other options, canvassed by politicians, and sometimes by bankers themselves. There is the stop the world and get off school of thought, which has some initial superficial appeal.