Effects of the 2008/09 global financial crisis and Asia’s response The recent crisis had the global financial system badly shaken with widespread effects of an unprecedented scale across the world. The Asian region has however demonstrated remarkable resilience during the crisis as most countries in Asia entered the crisis period with a sound set of economic and financial fundamentals, mainly attributed to the lessons learned from the Asian financial crisis of the late 1990s. It was painful. It was a bitter lesson. We embarked on a bold reform that fundamentally alters the landscape of our financial system. But the payouts have been tremendous. The governments of the Asian economies have now the flexibility to implement large stimulus, given the strong economy and low public debt levels in the region. Credit flows to the private sector remain undisrupted as financial institutions in the Asian countries were strong and well capitalised. The household and corporate sectors in Asia were also not over leveraged. Furthermore, Asia was not confronted by widespread unemployment. The various reform measures had enabled the Asian economies to build more shock absorbers and reduced the number of shock amplifiers in their economies following the 1997/98 financial crisis. What we have learnt is that there are no short cuts in reforming a broken system. We also learnt that we should always have an open mind in looking at probable solutions. Just like what a good doctor would prescribe, some time, administering bitter medicines are the only way to go.
Moreover, they should finance their house purchase with a sufficient proportion of equity. Equity acts as a cushion, absorbing movements in property prices. In addition, banks should use discipline in lending practices, even in an environment of low interest rates. The prime considerations when granting loans should be the observance of maximum loan-to-value ratios and a conservative valuation of property. BIS Review 78/2009  1