… then why are so many lightly regulated jurisdictions largely avoiding the current financial crisis? Tyler Cowen notes:

A Friday article says this:

The worldwide financial crisis is proving a lot more damaging than was expected. Not in Cayman, yet, but we had better get ready for it to affect us severely sooner or later.

I’ve googled around and can’t seem to find any reports worse than that one. It’s fair enough to argue those banks are doing OK because bailouts from abroad have limited systematic risk in the world as a whole. But still Cayman Island banks don’t seem to have gotten into trouble on their own, at least not so far.

Cayman banking is not laissez-faire as is sometimes believed, but still it is relatively unregulated and measured in terms of liabilities it is the world’s fifth largest banking center. And it’s doing OK. As Arnold Kling has been pointing out, transparency isn’t everything.

Panama, by the way, also does not seem to be having major banking problems. The country has no central bank or lender of last resort, yet the banking system is highly liquid.

University of Missouri F.A. Hayek Professor of Economic History Lawrence White strikes a similar vein responding to Paul Krugman’s claims that “market worshiping ideology” is to blame for the current financial turmoil:

Over the broad sweep of history, banking systems with few legal restrictions have been more stable than systems with more intervention. Perhaps the most striking example is that Canada, which allowed nationwide branch banking (unlike the United States) and had fewer restrictions on banknote issue, had no bank failures during the Great Depression (while the United States had thousands). Krugman invokes the Great Depression, claiming that in the recent troubles “we were in a situation bearing a family resemblance to the great banking crisis of 1930–31,” facing “a cascade of financial failures that would cripple the economy.” But he fails to mention that Canada’s less-restricted system had no “great banking crisis” in the Depression.