While affected by the crisis, the effects on the domestic economies and financial systems have been relatively contained. Importantly, financial  2  BIS central bankers’ speeches  intermediation has not been disrupted, and the financial systems have continued the supply of credit to support the real economy. Following the Asian financial crisis, wide-ranging financial reforms were undertaken to strengthen the financial systems of the region. The building of sufficient capital and liquidity buffers during good times provided the ability to support the continued credit intermediation process. Improved regulatory and supervisory approaches, underpinned by enhanced governance and risk management practices, have enhanced financial stability in the region. Enhanced surveillance arrangements and a wider range of policy tools have placed policymakers in better state of readiness to deal with problems in the financial system pre-emptively. Macroprudential policies have also been extensively relied upon to mitigate the risks from excesses and imbalances in the financial system. Continued efforts were also made to further advance financial sector development in the region. In particular, the development of the domestic bond market has served to reinforce the foundations for financial stability in Asia. Financial activities have also remained generally anchored by productive real economic activities. In addition to the region’s strong external position, high international reserves and more flexible exchange rates have also enabled Asia to absorb and adjust to changing external conditions. The increasing cohesiveness of Asia is also a core strength and source of stability for the region.

The region is now well ahead in the areas of regional surveillance and supervisory arrangement, and in crisis prevention, management and resolution. Regional support mechanisms have also been established. There are also regional institutional arrangements in place for the active sharing of information on the emerging risks to regional stability and on building domestic capacities and to coordinate regional responses in the event of eminent risks to the region. These efforts will be further strengthened into the future. Islamic finance as a growth area in Asia The rapid integration of Islamic finance into the international financial system is a growing feature in the financial landscape of Asia. Developments in several emerging economies in Asia have seen the rapid expansion of Islamic finance. Global Islamic financial assets are now estimated to be more than 1 trillion US dollars. While more than 60 percent of the world’s Muslim population is in Asia, the interest in Islamic finance transcends to beyond this community. The inherent principle of Islamic finance, which requires financial transactions to be accompanied by underlying economic activity, ensures the close link between the expansion in financial assets with the real economy. It also increases its potential in fostering  BIS central bankers’ speeches  3  sustainable growth. This has positioned Islamic finance to be well-anchored to serve the real economy, and enhances its potential as a sustainable and stable form of financial intermediation.