Therefore, we need to recognize the unknown element, that is, we don’t know their full impact on the financial market and global economy. The latest review of the Financial Stability Board of potential unintended consequences of regulatory reforms pointed to these concerns. Emerging markets have raised some concerns about the Basel III capital and liquidity frameworks. These may have negative impact on domestic financial markets, increase banks’ cost, and thus reduce credit and financial market liquidity. In particular, the liquidity standard, which is not yet finalized, the calculation in the framework may not accurately reflect emerging market’s financial market, and the implementation could distort local financial market. There have also been concerns about the treatment of traditionally low-risk trade finance in leverage ratio which may impact growth and development. Emerging Asia is predominantly bank-based; thus, Basel III will affect its financial intermediation relatively more than in the West, just at the time when financial intermediation is critical to support economic development and integration. Some of these standards are still under discussion, and thus Asia-Pacific region already has a proactive regional strategy to help steer these regulatory reforms, such as through EMEAP forum, to reflect our economic and financial market context. With regard to the OTC derivatives reform which aims to move OTC derivatives trading on to exchanges and cleared through central counterparties. There are concerns regarding inconsistency of regulation between countries, infrastructure that is needed, and cost for users.

2  BIS central bankers’ speeches  Also the influence and discipline from the IMF program or FSAP may have been somewhat countered by growing importance of regional financial assistance mechanism with their own governance. Each country or region would be more likely to adopt these new standards if they buy-in to the rationale of the reform. Inclusiveness and coordination are therefore keys for commitment, and the pillars of the new governance for bodies such as the Basel Committee and Financial Stability Board; this is perhaps the new Bretton Woods. Turning to longer-term challenges and strategy, Asia’s increased economic importance will rise as a consequence of its development efforts in liberalizing the economy and the financial system, allowing market forces to enhance efficiency and productivity. These forces will accelerate with increased integration of the ASEAN Economic Community, ASEAN plus 3, and plus 6. For intra-Asia’s financial flows, Asia is not “homogenous” – the “North Asia” and financial center economies are developed, and some are mature economies facing their own challenges. The rest of Asia is emerging economies, some facing middle income trap, and some facing the transition challenges from centrally planned to market economy. “North Asia” will tend to have savings surplus, and need growth potential and to export of FDI. “South Asia” will need savings to finance investments. There is a natural synergy in resource allocation, industrial and logistic linkage. Thus, regional financing and growing role of regional-centric financial services would naturally follow.