There is no reason why the US and Europe should not take advantage of the wealth of Asian institutions. This would help reduce the cost to taxpayers of the bailout, and, by keeping bigger banks in the hands of eager players, the government could focus on nationalizing and rehabilitating the smaller banks and thrifts that serve a greater number of consumers.
In return, the Asian institutions would have a chance at the rich returns they desperately seek but cannot receive at home. SWFs are meant to diversify state investments to higher-risk, higher-return assets. China, South Korea, Singapore and Japan all have aging populations and massive pension obligations that need immediate funding. Likewise, many of their banks are overcapitalized with nowhere to go: After the Asian crisis and the Japanese asset bubble of the 1990s, companies have become conservative borrowers, while banks’ opportunities to expand within the region remain limited by restrictions on foreign ownership of local banks.
Unfortunately, some SWFs that invested in financial institutions in the earlier part of the year have seen their portfolios decline in value. But it would be foolish to make that a reason for ignoring the opportunities before them now.
It therefore behooves the US and Europe to reach out to Asian institutions to participate in mending their financial systems. A key to the success of Asia’s restructuring effort, despite massive social, political and economic obstacles, is the defined and systematic way in which each market dealt with its banks to reorganize the sector. This approach, so far, has been lacking in the West. As the crisis threatens the global economy, regulators do not have the luxury of taking their time.
Abe De Ramos, an associate fellow of the Asia Society, is a Hong Kong-based financial editor and a former policy analyst at the CFA Institute’s Center for Financial Market Integrity.
COPYRIGHT: PROJECT SYNDICATE/ASIA SOCIETY
RSS