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.
The point is not that the private client-based, tax haven, sometimes drug money, Panama and the Cayman Islands systems are automatic models for the U.S. Rather many of the critics of deregulation are not trying hard to come up with the deepest possible explanation of the crisis. A key principle of science is to consider the outliers or the points which might appear to refute your hypothesis.
It would be useful if someone would do a comparative international study of where the banking crisis has been most severe, least severe and why.
Addendum: Larry Ribstein comments.