Safety nets have also been developed and enhanced, such as in the form of liquidity support to member countries via the ASEAN+3 Chiang Mai Multilateral Swap initiative which consists of a USD120 billion currency swap facility, aimed to support countries with short-term liquidity needs and to supplement existing international financial arrangements. These various developments certainly have significantly enhanced the region’s capability to holistically manage the inflows and to safeguard against the risk of sudden capital flow reversal and the instability that it would bring. Malaysian market developments Let me turn to some recent key developments in the Malaysian financial sector. The domestic financial landscape is undergoing transformation due to our continuous efforts in financial deregulation and liberalisation. Pursuant to financial liberalisation measures announced by Prime Minister Dato’ Sri Najib Tun Razak, the central bank has granted 5 commercial banking licences to foreign banks in June this year, with mega Islamic banking licences to follow suit. Foreign equity limits in investment banks, Islamic banks and insurers have been raised while more operational flexibilities have been granted. In addition, the government has announced plans to increase foreign investment limits for the government linked investment companies such as the Employee Provident Fund. Importantly, these  2  BIS Review 162/2010  liberalisation measures will further strengthen our inter-linkages with financial markets in other parts of the world.

This is not merely a short-term objective, but rather an important anchor for the region’s economic recovery with significant effects on both the economies of the region and the banking groups, which have declared their commitment to our region. We are currently witnessing a period of massive reforms in the EU supervisory architecture, with the establishment of the Banking Union. These reforms correspond to the reactivation of the Vienna Initiative II, hence providing a great opportunity to convey our relevant views as host countries to EU authorities. To support the Steering Committee of the Vienna Initiative, a Working Group has been established to take stock of the Banking Union implications, especially on non-member countries. We consider the creation of the Banking Union as both an ambitious challenge, and a great opportunity to lay down the groundwork for better and more coordinated supervision, especially in a cross-border context. The Banking Union shall involve a Single Supervisory Mechanism (SSM) under the guidance of the ECB, charged with supervising systemically important EU banks involved in cross-border operations. The measure is expected to change the coordination framework between home and host supervisors. This means that the insofar relationship of host countries with a number of national supervisory authorities will now be concentrated on bilateral relationships with the SSM in the case of branches or subsidiaries of systemically important EU banks. In this respect, the Bank of Albania has emphasized the need to establish a permanent working relationship with the ECB, and, possibly, appropriate mechanisms to achieve this.