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The key points that Japan believes it could pass on to the US are that a "big bank should not be allowed to go bankrupt" and banking reform should be undertaken as soon as possible.

Daikichi Momma, deputy director-general of the international bureau at Japan's Finance Ministry, said in a recent interview that he was surprised by the US authorities' decision on Lehman Brothers.

"I was shocked to learn about Lehman Brothers because a big bank shouldn't be allowed to fail. I didn't think that the US would let it fail," he said.

If big banks don't survive, giving loans to businesses would be impossible. Without banks, all industries would go broke, he said.

"The difficult part is that we shouldn't give loans to those who can't pay them back. We need to go back to the basic principle," he said.

Momma has experienced bailing out the banking industry during 1999-2000. Banks had been in this tough period before. Their debts ballooned, while several governments wasted trillions of yen on bailing out them.

However, it was in 2002-2004 when the Japanese government successfully took actions that consequently led to recovery including forcing major banks to undergo stringent audits and disclose bad loans, spending 2 trillion yen (Bt700 billion) to nationalise big banks, getting rid of their sharehold¬ers and allowing ailing banks to fail.

Junichiro Koizumi, then prime minister, who was recognised as a reformist, ordered top banks to go through tough audits as part of the Takenaka Plan, named after Heizo Takenaka,who then headed the government's financial reform schemes.

During the lost decade, Japanese suffered from the falling stock market, which lost up to threequarters of its value.

Japan's public debt jumped above gross domestic product, while its property prices slid for more than 10 years in a row.

"Banking assets deteriorate very quickly … Once nationalised, these banks will survive … But it's difficult to evaluate toxic assets too. In the past we didn't have any success case that we could use to evaluate assets correctly.

"Once it's going bankrupt, we need to choose which one is a bad loan or good loan. We need to consider the profitability of these companies in the future too, which is very difficult," he said.

After the reform, Japanese authorities have been criticised for overregulation, which, in fact, largely helped create immunity and protected Japan's financial system from the hamburger crisis, although Japan is suffering indirectly from the steep fall in economic growth due to dropping global demand.

There are many more aspects that the US could learn from Japan's financial sector reform, says the head of Japanese economic research at investment bank Morgan Stanley.

Robert Feldman, managing director of Morgan Stanley Japan Securities, said five key factors had helped Japan achieve its financial sector reform during its lost decade. They are economic strategy, safety net, capital injections, public support and strict asset assessment.

The problem in Japan was there was no regulatory structure in the first place, he said. For example, banks in Japan didn't need to disclose their non-performing loan figures during 1992-1993. Then, in terms of economic strategy, to solve bad asset problems, there is a need to reallocate assets, or supply-side reform.

"It's freakanomics right now. People are perfectly irrational in the US … Not only banks have problems, borrowers also have problems too.

Everyone is making a mistake - lenders, borrowers and regulators. There was misallocation of assets," he said.

Regarding the safety net, once the crisis hit, people get worried about the situation. Thus, it's a good idea that the US Federal Reserve should guarantee liquidity in the market like Japan.

There's a need for capital injection. But there should be a clear standard for conditionality - what banks need to do to meet the standards when they get injections of capital.

In Japan, authorities didn't disclose the discount of capital injections into individual banks, while the systemic impact needed to be considered.

Public support is also crucial. Without that, the crisis would be worse. In the US, when it seemed that the very first bill for the financial bailout package might not pass congress, the stock market plummeted.

Last, there must be strict asset assessment. The US government's stress test is a good idea.

"You also need to tell people the truth," he said.

While the US and European Union are like to experience a Ushaped economic recovery, Japan is likely to face a W-shaped one.

US home prices fell at about the same rate in the first two years of decline as Japanese housing prices. If US home prices keep falling at the same pace, they will hit the previous trough in mid2010, he added.