This recent decade has seen the rapid internationalisation of Islamic finance resulting in significant growth in cross border financial flows. The development of Islamic financial markets, in particular, the sukuk market, the progressive financial sector liberalisation, and the establishment of international arrangements and institutions to safeguard financial stability, cumulatively have contributed to enhance the international dimension of the industry. There are now more than 600 Islamic financial institutions operating in more than 75 countries. Given that Islamic financial transactions require an underlying economic transaction, it is a form of financial intermediation that is well anchored to serve the real economy. With its internationalisation, it has become an increasingly more important channel for the efficient allocation of financial resources across borders and for the diversification of risks. This new international dimension of Islamic finance has facilitated stronger financial ties between Asia and the Middle East. The sukuk market in particular has become an important avenue for international fund raising and investment activities that generate significant cross border flows. While the efforts to put in place these pre-conditions will continue, equally important is the role of the private sector in driving the Asian regional financial integration agenda, particularly in building the institutional capability to effectively intermediate funds in the region. While foreign presence throughout our region facilitates this process, it needs to be complemented by strong domestic regional intermediaries whose operations would be more inclusive and thus increase the potential for balanced growth in our region.

Asia has demonstrated its resilience to the many shocks from the international financial markets and the global economy during this recent global financial crisis. As highly open  2  BIS central bankers’ speeches  economies, most economies in Asia have been highly affected by these developments. Stronger domestic demand, greater intra-regional trade and investment, reinforced by resilient financial systems and strong macroeconomic fundamentals, have supported the economic performance of our region. There have been tremendous payoffs for the region from the decade long of financial reforms, institutional building and development of financial infrastructure. Despite the highly challenging environment of slower trade and volatile financial markets, financial intermediation in Asia has continued uninterrupted and financial markets, while more volatile, have remained orderly. It is thus on these strong foundations that the regional financial integration in Asia is not being set back. On the contrary, despite these global developments, the integration process has continued and regional financial cooperation and collaboration has strengthened, reinforced by the increased regional participation and presence of the private sector. Global regulatory reforms Let me now turn to the global regulatory reforms and its implications for Asia. The global regulatory response to the financial crisis is now moving into the implementation phase. At its core are the reforms to build a stronger global regulatory framework to significantly raise the level of resilience of the banking system. While that work has now been largely finalised, the complex task of implementing the new global capital and liquidity standards is just beginning.