But my reading of the episode is that it is consistent with a shift to a more credible policy regime. After the announcement of October 1997 and the communication thereafter market rates reacted in a direction that few could have anticipated. Not only did the remaining spread between the converging economies and the core countries progressively disappear.
This could be pursued via two main avenues: first, firms should be required to undertake their own due diligence and internal credit risk assessment. Second, supervisors should focus on developing rules to appropriately combine internally developed credit judgment and external input with varying weights depending on the specific characteristics of the credit exposures.