Mr Nout Wellink, President of the Dutch National Bank and chairman of the Basel Committee on banking supervision, said in a speech in Beijing that 'regulatory gaps... left important segments of the financial system under-regulated'.

This lack of regulation, coupled with abundant credit and 'fundamental shortcomings in financial institutions' governance,' led to the current crisis which has seen the collapse of Wall Street giants such as Lehman Brothers and unprecedented state intervention in the financial markets.

'The speed and scale of these developments have been nothing short of astonishing,' said Mr Wellink in his capacity as Basel Committee chair, which reports to the Bank for International Settlements, also known as the 'central bank of central bankers' and based in the Swiss city of Basel.

'It is clear that we continue to face significant challenges as real economic activity slows,' he added in the speech, the text of which was released here.

The BIS reported recently that banks cut cross-border lending by US$1.1 trillion (S$1.68 trillion) in the second quarter and clients withdrew a similar amount, highlighting the severity of the crisis.

He said that the Basel Committee was taking steps to firm up the regulatory framework, strengthen capital and liquidity buffers, and promote stronger risk management and governance practices.

'Our goal is to help ensure that the banking sector serves its traditional role as a shock absorber to the financial system, rather than an amplifier of risk between the financial sector and the real economy,' he said.

'We have put in place a comprehensive strategy to address the lessons (of the crisis) as they relate to the banking sector, and we are well along in executing it.'

However, Mr Wellink stressed that 'it remains the responsibility of the private sector to take the lead in strengthening firm-wide governance and risk management frameworks.'

World leaders met over the weekend in Washington to attempt to form a common strategy on how to tackle the crisis but many observers were unimpressed with the results.

The G20 group of developed and developing countries at the meeting stopped short of announcing specific steps such as coordinated stimulus spending.

Their deliberations therefore appeared to offer scant hope for short-term action to curb the damage, analysts said.

'In the midst of an emergency crisis, to have a statement that reads 'We will cooperate with each another' is all but meaningless,' said Mr Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. -- AFP