Each recession has its character, but this is indeed a strange one. Until last summer, many central bankers were still preoccupied by inflation despite the agonised state of the banking sector.

Then in the final quarter, after the collapse of Lehmans, world trade fell off a cliff. Industry production in Japan collapsed to 40% down year-on-year. The gap between potential and actual output was higher in the US than it had been for six decades.

If anyone needed a demonstration of the special role of banks in the economy (and hence why they deserve tight regulation), this was it. Economic life requires plumbing and the banks provide it.

Post-Lehmans, the confidence crisis that had prevented banks from lending to each other became a fully fledged panic.

The availability of credit dried up but anyone who needed to ship goods round the world and would have to borrow to do so also panicked.

In hindsight, allowing Lehmans to collapse was a terrible decision. The authorities feared that a bailout would reward risk-taking and encourage other banks to make ill-advised decisions.

But "moral hazard" of this kind can be handled by displacing managers and adroitly dispossessing equity- and bond-holders, not by closing the business.

If a water utility goes bankrupt, you transfer the ownership rather than substituting a new network of pipes.

Large banks are so interconnected and integrated with other economic activities that closing them suddenly provokes massive losses not just for the bank's owners but for the economy as a whole.

Looking forward, from the depths of this unprecedented recession, it is natural to ask: is the worst behind us?

Economists of an alphabetical bent have been arguing whether the downturn will prove V-shaped, W-shaped, U-shaped or L-shaped?

In the past, we have experienced purely financial disruptions that did not spiral out into broader economic problems.

When the equity market collapsed in 1987 and when Long-Term Capital Management failed in 1998, fears of recession were rife. But the real economy hardly flinched.

In this case, we allowed a more serious financial dislocation to undercut global prosperity.

To the extent that confidence in banks is restored, economies that are flexible should bounce back quickly.

The predictions of the IMF and others last autumn that the severity of the recession in the UK would exceed that of other European countries always seemed dubious.

Our banking woes were more evident than those of other countries, and our housing market was more vulnerable.

But the UK Government surprised everyone with its vigorous response to the crisis. And the Bank of England has fallen into line by suddenly adopting the perspective of a minority member of its monetary policy committee who had forecast a deep recession if rates were not cut.

Stimulus packages, bank support operations, interest rate cuts and the resulting depreciation in sterling have rescued the UK, which now looks well placed to bounce back relatively swiftly.

Similarly, though its imbalances and financial distortions were the original root of this crisis, the US economy is exhibiting early signs of a recovery.

If this occurs, countries across the channel may feel a certain bitterness.

The debates this month about European financial regulation have underlined how policymakers in France and Germany blame the "Anglo-Saxon" system for the mayhem of the past two years.

Many European banks were actively engaged in the financial markets that collapsed; but these markets are still viewed by much of European officialdom as foreign and sinful.

European countries like Germany that rely heavily on export demand and, because of their Euro-system membership, cannot enjoy the benefits of a currency depreciation, are vulnerable.

Banking frailty is also being tackled in several European countries by the easy route of European Central Bank lending rather than by injecting public capital or forcing institutions to recapitalise themselves extensively.

This is a politically easier route but does not allow the banks to return quickly to normal.

The intriguing question is: which of the advanced economies will recover most quickly from the crisis? Of course, the severities of the shocks, both financial and economic, vary in magnitude between countries.

Banks in southern European countries such as Spain, Italy and Greece were relatively unsophisticated, and were not caught up in the enthusiasm for the complex investments that generated the financial crisis.

Also, the flexibility of economies and their robustness differ.

Many European labour markets have experienced a creeping liberalisation, in attitudes if not in legislative arrangements, driven by the influx of workers from Eastern Europe and the greater competition they have brought.

The betting is the two Anglo-Saxon economies will be quickest to emerge. The vigour of their policy responses, exchange rate flexibility and liberalised nature of their goods and labour markets point in this direction.

Nevertheless, the traditional breezy Anglo-Saxon confidence in the fundamental rectitude of markets has been thoroughly dented by recent events.

We always knew that bank runs and liquidity crises were possible which is why banks are regulated. But the great costs of this crisis have upped the ante, suggesting the regulation should be more intrusive and heavier.

In intervening, however, we should be careful to reinforce rather than to hobble our financial system through unintelligent regulation.

Whatever one thinks about bankers and their remuneration, as we have seen this year, the smooth functioning of the economy depends on their efforts.

Professor William Perraudin is director, Risk Management Laboratory, at Imperial College Business School