Much hard work is needed to make existing rules work properly – limiting connected and government-directed lending; getting asset valuations (and hence provisioning) right; and enforcing foreign currency open-position limits. As well, the rules need to be reinforced.
Banks have to be made to take account of their borrowers’ overall balance sheet position, so that the bank is not brought down, at one remove, by the foreign exchange exposure of its borrowers. Poor credit appraisal was clearly a central factor in the Asian crisis, which now has to be addressed.