The strong cross-border linkages of an integrated ASEAN capital market provide vast business opportunities for countries to capitalize on the diverse comparative advantages in this region. As an access point, Malaysia is well positioned to be one of the gateways for non-ASEAN countries, institutions and investors to participate in these markets. Malaysia has a facilitative environment with a strong regulatory and supervision to support business activities while safeguarding financial stability. In addition, there has also been the strengthening of bilateral economic and financial ties, which has become a prevalent theme across Asia. Supplementary to these affiliations, is also a strong trend to increase participation in Asia’s enormous growth potential through affiliations in regional bodies. Within the ASEAN grouping, among the areas of priority is the deepening of cooperation to accelerate the role of the financial sector in supporting the realization of the ASEAN Economic Community by 2015. Risk mitigation as Asia strives for regional integration The events surrounding the recent European sovereign debt crisis provide us with many important lessons. While exposures to numerous financial markets bring about tremendous economical and financial benefits, it is not without risks. Financial integration between markets, if not well designed, can lead to costly financial implications. Hence, the path to integration can expect its associated challenges that will need to be addressed. In implementing institutional arrangements across the region, it can be expected that individual countries will have to balance national priorities while seeking to strengthen their place in the global market.

Also, the risk of funding runs should be reduced by the increase in the quality of information on firm exposures that can be made available to regulators, and, in principle, through increased disclosure to market participants. I also think that OTC derivatives reform is an important complement to the emphasis placed on strengthening individual institutions, which is part of the broader reform agenda. Financial stability is not just about individual institutions but also about how the entire system interacts. For example, are the incentives in the system appropriate and does the system amplify or dampen shocks? Thus, it is important that reform efforts not concentrate exclusively on the systemically important financial institutions, but also that these efforts focus on the market products and practices and the linkages among markets, market participants and infrastructures. Despite the progress made to date, I do have some concerns about the OTC derivatives reform effort. My first concern is about pace. For example, it seems to me that we have made much more progress in strengthening individual institutions through higher bank capital and liquidity requirements than we have made in reducing risk in the OTCD space. Now some of this is inevitable because OTCD reform is harder and we are not as far along. It requires the creation of new institutions to clear such trades or to house the trade information. It also requires national legislation to be flexible enough so that it can work coherently on a global basis.