The most immediate response was to offer liquidity support to the banking sector, especially as the crisis intensified in the wake of the collapse of Lehman Brothers and the rescue of American International Group. Measures adopted included widening access to Discount Window Facilities, expanding the range of eligible collateral and counterparties, extending loan tenors and introducing foreign currency swap lines. As the lending in these operations is normally over-collateralised, there is essentially negligible credit risk to the central bank. In addition to these classical, if somewhat expanded, central banking support operations, a number of central banks – most especially the Federal Reserve, but also the European Central Bank and the Bank of England – undertook less conventional actions aimed at improving the operation of particular, temporarily dysfunctional, markets. For instance, the Federal Reserve and the Bank of England both bought high-quality Commercial Paper, reducing the risk that a borrower could not raise new funds to repay maturing paper and thus also encouraging private investors to lend. This exposes the central bank to some credit risk, 3 but the short tenor and restriction to high-quality companies makes the risk slight. The Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF) represented a rather more radical departure. Under the TALF, the Federal Reserve made medium-term loans to investors against highly-rated securities backed by consumer and business debt, with the aim of increasing the availability of consumer and business credit.

The aim is to put in place elements that will facilitate the deepening of trade and investment linkages within Asia while also collectively working towards strengthening Asia’s resilience and stability. Asia’s economic transformation, comprehensive financial sector reforms and fiscal prudence have provided important support to Asia’s resilience and ability to withstand the destabilising spill-over effects of the current ongoing global financial and economic crisis. In addition, the regional surveillance mechanisms are being reinforced by financial support facilities and an integrated framework for crisis resolution. Every financial crisis has prompted a review of the role, function and authority of central banks. Indeed, developments in this recent four years have had profound implications on the central banks of crisis affected countries. The mandate of central banks for financial stability has generally been strengthened considerably to deal more effectively with risks in the financial system and economy. This has been accompanied by a fundamental review of governance arrangements and regulatory reforms at the international level. At the extreme, responses of central banks to the crises in the US and Europe have ventured beyond conventional approaches. In the area of surveillance, existing monitoring frameworks have been extended to capture risks and vulnerabilities emerging from areas beyond the traditional perimeters of regulated financial institutions and markets. In this respect, effective coordination between the macroprudential and micro-prudential surveillance functions have become more important, given that supervisory interventions and crisis management measures are now being applied to a wider set of institutions and markets.