The home country must put a cap on leverage, limit acceptable liquidity and funding practices, and have a resolution regime for winding up complex financial institutions. Otherwise, emerging markets should be able to say that banks from that country will not be allowed to enter.
[E]merging markets need to redouble their efforts to build bond markets, but on a local basis. Countries with more developed bond markets experienced less negative fallout from the crisis, since their large firms retained access to non-bank sources of finance.
Encouraging participation by foreign investors is a quick way to jump-start local bond market activity. But recent experience suggests that quickest is not best. Regulations limiting foreign participation to prudent levels should be part of the new international regime.
[E]merging markets need to redouble their efforts to build bond markets, but on a local basis. Countries with more developed bond markets experienced less negative fallout from the crisis, since their large firms retained access to non-bank sources of finance.
Encouraging participation by foreign investors is a quick way to jump-start local bond market activity. But recent experience suggests that quickest is not best. Regulations limiting foreign participation to prudent levels should be part of the new international regime.
Project Syndicate, Eichengreen
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