Asia Feeling the Credit Crunch

Asia moves to shield markets, boost confidence amid Wall Street crisis, insurancenewsnet.com
Asia battles to shield markets from Wall Street crisis, INQUIRER.net
ADB urges coordination among Asia’s regulators amid financial turmoil, China View
China steps in to prop up stocks, Financial Times

Asia is feeling the crunch as the effects of the U.S. credit crisis spread across the globe. Asian bank stocks tumbled after Lehman Brothers filed for bankruptcy protection on Monday and central banks have had to inject billions of dollars to support weakened money markets. The Asian Development Bank (ADB) has warned that the market is vulnerable in several areas, including asset markets—such as real estate—and is struggling to contain inflation to prevent slowed economic activity. Additionally, analysts have warned that financial integration across Asia is underdeveloped, in spite of growth in regional trade integration, and Asia is too dependent on European and North American markets for handling large-scale savings.

The ADB proposed establishment of an “Asian Financial Stability Dialogue” to coordinate regulatory development and keep a lookout for potential vulnerabilities in the Asian markets. The ADB is looking to develop new and deeper financial markets, promote consistent market standards, and set-up better standards for government transparency to increase domestic and international investment. The ADB hopes that by stepping up regulation and working to improve these different aspects of the Asian markets, policy makers and regulators can shield banks from the financial crises caused by U.S. mortgage defaults--which has caused more than $400 billion in losses and write-downs to Western lenders.

Although Asian stocks surged Friday after announcement of the U.S. bailout plan, analysts say that there hasn’t been enough change in companies and the world markets and warn that Asian financial markets and economies remain at risk.

Questions

(1) How will the U.S. bailout plan affect Asian markets and economies?

(2) How can Asia reduce dependency on U.S. and European markets?

(3) What impact might the proposed "Asian Financial Stability Dialogue" have on Asian markets? What is the likelihood Asian markets will cooperate to develop such a dialogue?