Part 3 At this point, allow me to offer some reflections on the changing economic and financial landscape for internationally active financial institutions. Asia is host to a diverse group of foreign financial institutions, many of which have a long history and entrenched presence in the region, with strong roots in our local economies. For the most part, these institutions have made important contributions to the development of domestic financial systems and economies. This includes meeting the demands for financial services in areas not being extensively served by the domestic financial system. While the international policy response to the global financial crisis has been extensive and on an unprecedented scale, an area that has not been as extensive is the cross-border dimension of policy making. More specifically, the global financial crisis has highlighted the gaps in the international framework for the regulation and supervision of the cross-border activities of financial institutions. This has generated renewed concerns on the extent to which external shocks might be transmitted to the domestic economies as a result of the presence of such international foreign financial institutions. As part of the international regulatory reforms, significant progress has been made to ensure that systemically important financial institutions have a higher degree of resilience and stronger incentives to reduce their systemic risks over time. This includes through the holding of higher capital, and requirements for all global SIFIs (systemically important financial institutions) to develop recovery and resolution plans.

Finally, I will conclude with a few words on the implications of the evolving financial regulatory landscape for large international financial institutions from the view of a host country, given that many of the world’s largest financial institutions have a presence in our financial systems. Part 1 Half a decade into the global financial crisis, the world economy continues to be significantly challenged by the inability to hold a sustained recovery. This clearly has important implications for Asia. While continuing to register positive economic growth, the momentum of the growth in 2012 has begun to moderate in most of emerging Asia. In addition, global policy spillovers and the deleveraging activities in US and Europe have contributed to increased and more volatile capital flows with its consequential implications on the financial markets in Asia. While the extraordinary policy actions taken, in particular, by central banks have been important in averting a major global economic recession, it has proven to be insufficient to support a sustained recovery. In the recent months, the global economy has again experienced a broad based moderation in growth from an already modest pace. The most pressing challenge confronting policymakers in the crisis-affected economies is to develop an optimal policy mix that will address the fiscal imbalance and impaired financial sector, and structural adjustments that will enhance competitiveness while at the same time be able to reduce the adverse impact these policies would have on the economy. However, it is important to recognise that drastic actions will have drastic consequences.