The IMF's Christoph Rosenberg said trust in banks may have been dented, but it hasn't vanished

Christoph Rosenberg: The IMF, the Bank for International Settlements and other institutions have been warning about financial-sector vulnerabilities for some time. But what was considered a tail risk some time ago has now materialized. The present crisis is different from previous ones in that it emanates from the very heart of the global financial system. This is why it has spread with such unprecedented speed, first to Europe and now to the emerging markets.

Are bailouts a good solution at this point? Doesn't it spoil the banks, which - and this seems likely - will not be held to account?

I think we have little choice at this juncture. The fragility of public confidence in many countries has now reached a point that some explicit public guarantee of financial system liabilities and/or recapitalization with public money is unavoidable. This does not mean that bank and bankers should not be held to account. Their shareholders are already suffering and so are, in cases like Lehman and Bear Stearns, their employees, who lost their jobs and often pensions. But any bailout should come with strings attached. Also, if the government takes partial ownership of banks or buys distressed assets, it should do so only temporarily.

Trust in the banking sector has dropped. Do you think it will be easy to restore this trust? How can this be done?

Trust in banks may have been dented, but it has not vanished. We have not seen runs on deposits lately. The EU-wide government guarantee for retail deposits up to EUR50,000 (zł.172,000) helps in this regard. The problem is rather confidence among banks, which indeed will take some time to reestablish, probably until the US housing market has bottomed out and assets can be properly valued. In that sense, trust is like a tree - you can chop it down in minutes, but it takes many years to grow.

We hear that the CEE region, including Poland, will not be affected as much. Is this because the markets are still relatively immature? Or will the crisis reach CEE countries in the long-run as well?

No country will dodge this bullet entirely. The banking systems in the new member states are by no means immature. In fact, they are closely linked to Western Europe through foreign ownership. Luckily, these parent banks have not been the ones most acutely affected, but this is obviously an area to monitor closely. In the medium term, the crisis will hit the CEE countries through at least two channels - lower growth in their trading partners and less availability of external financing, including for foreign direct investment. Countries with better fundamentals, such as low current account and fiscal deficits, will do better. This can already be seen in the widely differing borrowing spreads in the region.

You will be a key speaker at the CEE Insight Forum in Budapest next week. What potential does such a meeting have at this particular time? Do you think the participants will propose any solutions?

The meeting could not be more timely. Investors want to understand what is going on, how various countries will be affected and what to make of various policy actions. I do hope that they also come with ideas of how to address this crisis. This is a time when any insight is valuable.