The BIS, also known as the 'central bank of central bankers', said its Basel Committee on Banking Supervision had drawn up a plan providing 'practical responses to the financial instability concerns raised by policy makers related to the banking sector'.

The plan aims to improve risk management and governance practices at banks, enhance the quality of 'Tier 1' capital - a measurement used by regulators to determine a bank's strength - and bolster supervisory frameworks to assess funding liquidity at cross-border banks, among others.

'The primary objective of the Committee's strategy is to strengthen capital buffers and help contain leverage in the banking system arising from both on- and off-balance sheet activities,' said Nout Wellink, chairman of the Basel Committee.

'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,' Mr Wellink said.

Earlier this week, Mr Wellink blamed the crisis on insufficient regulation and weak risk management in financial institutions.

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, he told a conference in China.

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. -- AFP