It has become fairly common to say that such groups should be resolved on a regional basis, ie broken up. Maybe. But, even if that is correct, it is obvious that “break it up” is an incomplete resolution plan. What happens to the broken-up parts? Under a “breakup” strategy, one needs a plan for each of the parts, both the distressed and the undistressed parts of the group. Under the FSB Standard (KA 11.8), it is clearly the responsibility of the home authorities of the group to ensure that a group wide resolution plan exists. There is no ducking that. It removes an ambiguity that has quietly haunted banking authorities for decades. Imagine that some of such a group’s regional/local commercial banks are smallish and simple, but that others are very large and complex. (Contrary to what is sometimes imagined, commercial banking can be complex!) To the extent that the group’s problems are in a bank(s) that is relatively small and simple, standard “Purchase & Assumption” techniques can be employed. Ie break up that bank into a good and bad bit; and effect a sale of the good and economically critical parts, aided by an injection of resources, in the usual way, by the Deposit Insurance Scheme, up to but not beyond what it would have had to pay out to insured depositors in a liquidation. The critical services are thereby maintained, and the DIS becomes a creditor in the administration and realisation of the rump.
Naturally, it will take time for these efforts to bear fruit. But developments in recent months have by no means wiped out the achievements of past decades. On the contrary, the region’s longer term fundamentals -- including its high domestic saving rates, strong fiscal positions, dynamic private sectors, and recent gains in competitiveness -- remain favorable. Moreover, all of these countries still have a long way to go to catch up with advanced economies. Thus, with sound policies, they should be able to sustain high rates of growth for another two decades or more. In the less distant future, growth can be expected to rebound strongly after a relatively short, but sharp, weakening of economic activity, especially in Thailand, and a rapid narrowing of external deficits. In fact, we are already seeing improvements in exports, even though recent exchange rate changes have not had much opportunity yet to generate their effects. And as these adjustments take place, each of these countries will have seized the opportunity to strengthen their economies in fundamental ways. This leads me to agree with those in the region who see this crisis not as a blight on the future, but as a blessing in disguise. Indeed, after this period of adjustment, these economies will emerge stronger than before. BIS Review 111/1997  -4-  In the meantime, I hope that some perspective about the benefits of global markets will be maintained.