``The (Bank for International Settlements) has failed in its new mission to ration lending according to risk levels,'' said Mays. ``Its standards have merely chased lenders into new, conveniently restructured vehicles outside its review.''

The Basle accord, which in 1988 set international guidelines for credit risk, requires international banks to hold capital equal to eight per cent of risk-weighted assets.

Mays, in a report titled ``True Leadership: how an ounce of prevention is worth more than a pound of cure,'' said that ``judicious'' provisions of temporary liquidity would be needed in the months ahead while other huge, high-risk positions are unwound in order to keep markets stable.

``Forestalling such disasters, even at the expense of letting a few perpetrators limit theirown failure, should be the first priority of national leaders today,'' Mays said.

The urgent recapitalisation of Long-Term Capital Management (LTCM), the prestigious hedge fund that required a rescue coordinated by the New York Federal Reserve, provoked ``tabloidised envy at its worst,'' Mays said.

While corruption has been blamed for the Asian crisis, the depth, spread and persistence of the malaise has unveiled the true cause -- too many banks, he added.

Easy access to credit persuaded consumers to buy things they did not need by subsidising the price, driving profit growth higher and boosting markets into a wild, bull run.

But as the effects of the Asian and Russian crises work their way through the banking system, both credit growth and profits are going to come under pressure, Mays said.

``In other words, the basic engine for market performance, profit growth, is slowing down, as the ever-more-powerful fuel has worn its components down,'' Mays said.

Bankers' failure to regulate themselvesproperly following the global deregulation of the finance industry created massive asset bubbles that mutated and spread, he said.

Japanese banks could not lend profitably on-shore, so they exported their 1980s asset bubble to the rest of Asia.

And weaker profits in banks' core business persuaded them to seek higher returns elsewhere, ``often to new clients it does not understand and cannot control,'' such as hedge funds.

The global economy is now undergoing a very painful period of delevering, and true political leadership will be required to manage the process effectively, Mays said.

``It will be hard for (world leaders) to overcome parochial interests now and fight the fire at its core rather than merely at its local periphery,'' said Mays.

Besides a reworking of the Basle accord system, Mays offered two other guidelines for managing the deleveraging process now underway.

- Work to re-establish equal access in the markets.

Mays said some large institutions have gained access to informationand liquidity that is disproportionate to their size or business risk, allowing them to generate an unacceptable level of volatility. New technology, without appropriate regulation, now allows proprietary information to flow much faster than public information, enhancing system instability.

Mays said this is the most complex task facing policy-makers.

- Offer breathing room for markets in recession through a multilateral (World Bank or IMF) guarantee for sovereign issuers, to make their restructuring affordable.

Global markets are not yet ready for the $200 billion a year, or more, of junk grade bonds needed to rebuild the world's emerging markets, Mays said. An IMF guarantee would make these bonds more palatable and allow the recapitalisation of banking systems, considered the biggest obstacle to recovery in Asia.