Global liquidity has increased significantly as central banks of developed countries, which eased policy rates rapidly, adopted quantitative easing policies. Recently, capital flows to developing countries such as Turkey have been accelerating owing to expectations that short-term interest rates in developed countries would remain low for an extended period, the decoupling in growth performances of countries and increased risk appetite. In the face of growing capital flows, some developing countries are introducing measures to prevent capital inflows. However, past experiences of countries show that restricting capital inflows is not really effective in terms of the volume of capital inflows while it is only partially effective in terms of the type of incoming capital. In other words, due to reasons such as financial innovation and the integration of markets, it is not possible to effectively prevent capital flows, unless they are fully controlled. The current conjuncture is conducive to benefiting wisely from capital flows and implementing policies that would reinforce financial stability and enhance financial depth. In this respect, the Financial Stability Report, which was prepared by the Central Bank of the Republic of Turkey and made public yesterday, is an important policy text delineating the strategy to be implemented in the upcoming period to maintain and reinforce financial stability in Turkey. Therefore, I suggest that the report be examined in detail. The policy framework, which the Report outlines in detail, has four pillars.

The protection gap in Asia is set to widen for the following three reasons: a. First, the frequency and severity of natural catastrophes is increasing. According to UN data, the number of natural disasters in the Asia-Pacific has increased from an annual average of 44 disasters in the 1970s to 146 in the 2000s. b. Second, the wealth and value of assets at risk have also increased. Strong economic growth in Asia and growing urbanisation has led to the rise of small highly-populated megacities, many of which lie along areas that are exposed to natural perils. c. Third, insurance penetration is still low in Asia. Just over 8% 3 of natural catastrophe losses are insured in Asia as compared to 40% in developed regions. 9 ILS, together with other risk management solutions including reinsurance and government pools, have significant scope to play a larger role in reducing the financial impact of natural disasters. Globally, UK, Spain and France have already established natural catastrophe schemes that tap on a combination of traditional and alternative capital. 10 There are positive signs of change, with ASEAN making a push to address its rising exposures to natural catastrophe. Let me provide some examples of recent developments: a. ASEAN has commenced a holistic approach to disaster risk management through the ASEAN Disaster Risk Financing and Insurance (ADRFI) Programme. The Programme will strengthen ASEAN’s disaster risk management capabilities through: i. Improving data required for assessing disaster risk exposure and financing solutions. ii. Enhancing knowledge on disaster financing solutions through capacity building. iii.