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.

As a rapidly growing region, greater regional financial  2  BIS central bankers’ speeches  integration will support the more effective and efficient intermediation of Asia’s sizeable funds towards meeting the investment opportunities of the region. Efforts to enhance cross-border financial linkages and advance financial integration have also intensified in Asia in this decade, mainly through the progressive liberalization of the financial sector, the pooling of resources to promote the development of domestic capital markets and the integration of payments and settlement systems. These developments have also seen the growing presence of Asian financial institutions in the region. In 2011, central banks in the ASEAN region have endorsed an ASEAN Financial Integration Framework which will pave the way for greater market access and operational flexibility for qualifying financial institutions. This represents the collective commitment of the region in the efforts to strengthen the region’s capacity to intermediate regional and international financial resources to productive activity in the region. A third imperative is the alignment of the financial sector to Asia’s demographic trends. Demographic profiles vary widely across Asia and have a significant impact on economic potential of the region. For many parts of Asia, demographic developments foreshadow significant changes in consumption, health and educational patterns. These changes have reinforced the significance of domestic sources of growth. Asia’s rising domestic demand has been supported by the development of a much broader range of financing options.