When US investment bank Lehman Brothers filed for Chapter 11 bankruptcy on 15 September, regulators in the UK quickly told the country’s banks to declare their exposure to the stricken firm. In the Gulf, central bank governors, meeting in Saudi Arabia to discuss monetary union, quickly moved to reassure markets that the region was free from exposure.

A few days later, upon returning from Jeddah, the UAE performed an about turn by asking banks to declare their exposure to trades with Lehman. Bahrain has been more cautious about claiming to be free of exposure, especially after saying its banks would not make any provisions for exposure to assets impacted by the sub-prime crisis, only to find there were more than $2bn worth of provisions waiting to be made.

The biggest problem that has been facing financial markets since the outbreak of the sub-prime crisis, and the associated liquidity shortage, has been the lack of clarity over who is exposed to what financial instruments, and how much that exposure is worth.

Other regulators in the region would do well to follow the UAE’s example, if they have not already, and try to discover the true nature of the exposure in their markets, and disclose their findings. The UAE and Bahrain, with the most advanced and most globalised banking sectors, will be the most at risk. In total, this exposure could add up to billions of dollars. It will be some time before it is clear if this exposure will result in any losses.

But there are other systemic risks to the region. Interbank lending is seizing up, and in a market already struggling to fund dollars, they will now become even more scarce. Corporates and project developers will struggle to raise financing over the next few months while the market digests the latest bad news.

The global economy is now entering a par-ticularly uncertain time, and clarity and transparency will be important to reassure jittery markets.