The call for equity as the buffer in banking received a boost from Stephen King, co-director of the Business Policy Forum, in a speech at Monash University yesterday.King's view chimes with the chief theme of David Murray's financial system inquiry and its preliminary work.King was a lead on a recent study by the Centre for International Finance and Regulation. Speaking yesterday, he said: "We were able to show that some policies, such as minimum equity requirements, can stabilise the banking sector, while ad hoc policies, such as debt guarantees or bailouts, can destabilise the banking sector."The report of the CIFR study showed "how a financial crisis in one country can 'infect' the banking system of another by raising the cost of wholesale funds." King said such a rise in the cost of wholesale funding could trigger a crisis in what was previously a healthy banking sector.The key interim finding of the Murray inquiry was that "many areas of the financial system are operating effectively and do not require substantial change," -  while it still pursued a vigorous conversation on capital and taxpayer protection.The inquiry panel warned against complacency and said the financial sector would have to confront challenges from future financial crises, pressure on the Federal Government's budget from an ageing population, stagnant productivity growth in the economy, technology advances in financial services and greater international integration.The CIFR report said, thanks to that increasing international integration,  keeping a financial crisis isolated within a single country was highly challenging. A financial crisis, with a hammering of the global banking system, would produce flow on effects that would be almost impossible to contain within the country unless there was substantial government/federal intervention, the CIFR said.King also underlined the  importance of central banks as critical providers of liquidity to banks and the wider financial system.Developing policies for financial institutions facing with liquidation was a pressing need, King said.The CIFR study analysed a range of policies that could be implemented by the government to help avoid an imported banking crisis. It focused on the implications of such policies for the structure and level of competition in banking as well as for the rates paid by borrowers and received by depositors, in "normal times".