The good news in the current financial turmoil is that regulators have learned a lot from prior events, especially the Great Depression of the 1930s, according to the global chief economist of banking giant HSBC, Stephen King.

He and a colleague, David Bloom, were visiting Bermuda on Monday from London, to speak to some of the bank's clients, and later the media, on the state of the global economy.

The level of concern is sufficiently high that the Bank's clients had turned out in record numbers, some 300 by one estimate, to hear what Mr. King had to say.

What have regulators learned?

"You must have coordination between the monetary and fiscal authorities; you have to liquefy the banking system; you have to try and deal with bad assets if you can; and most importantly you have to stop the degree to which you have bank runs," Mr. King said. "Looking back at the 1930s, the biggest problem back then was not so much the stock market crash, but the collapse of the banking system that come through thereafter."

Briefly adopting the language of his literary namesake in the field of fictional horror, Mr. King said that today's environment is "spookily reminiscent of the 1930s and the Great Depression."

Mr. King had praise for US Treasury Secretary Henry Paulson's proposals, revealed in the past few days, to supply liquidity to the global system and to remove some of the 'toxic' debt that is inhibiting banks from lending. "These proposals are not, however, some kind of magic bullet," Mr. King said. "The last time we saw this kind of scheme being put into place, which was the Resolution Trust Corporation, launched in 1989, the economic outcomes were pretty disappointing."

Recession followed despite the actions taken in 1989, and it was not until 1994 that "there were clear indications of a recovery in economic activity", Mr. King said. "The same risks exist in the global economy today. The danger now is that there will be a huge process of deleveraging, with households, banks and everyone else trying to rid themselves of this debt, while we are faced with a period of very weak economic growth over the next two or three years."

Mr. King in fact forecast greatly depressed growth for the developed economies, "perhaps similar to that of Japan in the 1990s", he said. As a consequence, interest rates in the US and UK "can only head in one direction, which is downwards, but inflation in the European markets might constrain the ECB's ability to lower rates to quite the same extent", he said.

Mr. Bloom, who is HSBC's global head of foreign exchange research, said: "The US dollar was making a comeback until recent events, more on the basis that other countries were starting to suffer than that the US was doing well, and that contagion had taken hold in the rest of the G-10," Mr. Bloom said. "Now we are starting to worry about inflation in most of the emerging markets. On that basis, we had been positive on the US dollar for the whole year."

The present circumstances have engendered a temporary situation in which people were not certain what to do, Mr. Bloom commented.

He refuted "alarmist stories" that the Federal Reserve's intervention would "flood the world with US dollars, which would prove very negative for the dollar".

Only last week, Mr. Bloom said, "there was a shortage of $180 billion, which required the Fed to pump dollars into the system".

We are facing an economic downturn, in which credit will be difficult to come by, he said, "and I still think that the world is short of US assets. It's long in US equities. Some of the big trends that we've seen over the last three years, based on strong growth, higher profits and equities doing very well, will have to be unwound. When they are unwound, that will be dollar-positive."

For his part, Philip Butterfield, CEO of Bank of Bermuda HSBC, was cautiously optimistic.

"All of us are under stress of one sort or the other," he said. "Our balance sheet is in reasonably good shape at the moment, but as the markets deteriorate, we're going to have to understand the potential impacts it would have on us – but I would expect our outcome to be fairly good."

Mr. Butterfield said that Bermuda is likely to experience lower growth, "and that this is an appropriate time for us to be cautious and to take stock of where we are and plan carefully for the future".