Regulators around the world are struggling with the subprime crisis. Fundamental questions are being posed on culpability, excess, system fallout and learnings. The US regulatory system, with its multiple regulators, is now faced with the challenge of dealing with a political outcry about the quality of its oversight, and Hank Paulson, the US treasury secretary, has come out with suggestions on how to go about simplifying the overall structure. As I sift through all that?s said, four questions appear to have engaged the media, politicians and regulators. The answers will absorb policymakers for months, if not years.

The first question causing aggravation in many quarters is the dichotomy between private profit and distributed losses. The whole question of moral hazard has come into sharp focus. When investment banks do well, their employees make a lot of money, and when they go bust, taxpayers bail them out. This creates a moral hazard and induces them to take big risks in the hope of big bonuses, knowing that if they mess up, they will be supported?for the sake of stability. How then do we punish the mistakes these people make? It is very unlikely that any of the CEOs who have been forced to resign are likely to be seen on the footpaths of Manhattan with a begging bowl. But answering this question has never been easy and nor will it be now.

The second question being debated is whether investment banking should be regulated. After the Depression, US lawmakers, through the Glass Steagall Act, legislated that commercial banks be prevented from doing investment banking, as they were part of the payment system?with access to the regulator?s lender-of-last-resort window. It took almost 70 years of commercial banks? advocacy to overturn this act through the Gramm Leach Bliley Act of 1999, but now with the bailout of Bears Stearns by the Federal Reserve, people are asking whether this was correct. The new demand is that if investment banks are to have access to lender-of-last-resort funds, they need to be firmly regulated, and many more of their trades need to be backed by capital. Paulson has suggested that the Fed be allowed to regulate any entity that it believes creates systemic risk. The central bank will thus get sweeping powers to investigate systemic risk, but in his plan, oversight of all entities will move to a prudential regulator of banks and thrifts. A regulatory battle lies ahead on this score, too.

The third and fourth questions, though linked, are in fact different. Paulson has gone more towards the Australian model than the UK?s FSA model. The FSA model had all regulatory oversight under one regulator to increase consistency in regulation. Thus supervision shifted from being institution-based to being activity-based. The UK introduced a model that was seen by many as the new standard. The collapse of Northern Rock and its subsequent nationalisation, though, has called the model into question. People wonder how good the model is in dealing with a bank crisis. In an earlier piece in these columns, I had highlighted the inter-agency coordination problem that was an important contributor to the current crisis.

The last question, then, goes back to the age-old conundrum about the role and focus of a central bank. The problem about how a monetary authority manages the tension between inflation and a challenge to the banking system in a period of crisis. The central bank is the only agency that can act as the lender of last resort, thanks to its control of monetary policy, but does this then dilute its anti-inflation policy emphasis? Does it matter? These questions will engage us all in the months and years to come, as they have for the last 100 years. The difference is urgency.

The author is managing director, The Boston Consulting Group, India. These are his personal views