Since 2003, key Asian central banks have established two Asian bond funds with capital of 3 billion in total.

From a regulator s perspective, this is a powerful argument for requiring higher capital to constrain the risk that banks can take on.

To help that crucial cohort, the Khushali Bank has been established with capital of 28 million for extending soft loans to the unemployed in rural regions.

True, the US Federal Reserve has tried to prevent a recession by cutting its interest rates. But the Fed cannot endow the banks with new equity capital and prevent a credit crunch.

The IMF could set up a special vehicle along the lines of its New Arrangements to Borrow (NAB), which would be capitalized by a first loss layer from the EFSF with the IMF s own capital comprising a second layer.

Higher and pro cyclical equity capital requirements on banks, combined with a requirement to raise contingent long term debt debt that converts into equity in a crisis is a better way forward.

Risk spreads have declined from their mid crisis highs, but credit in many sectors remains tight or barely available, while the financial sector is set to become more conservative and is likely to be re regulated with higher capital, reserve, and margin requirements.