The key features of emerging markets in Asia are the rapid changes in the financial landscape, the disintermediation and growth of capital markets, globalisation and the increased linkages between financial markets and economies via crossborder activities, the proliferation of complex financial instruments and the increasing convergence of supervisory framework and standards such as Basel II, IOSCO, the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS), and international accounting standards. In this changing landscape, we see competition along with synergy between like-institutions as well as different kinds of institutions. In savings instruments and wealth management market, we see the rapid growth of interactions between commercial banks, investment banks, and insurance companies, domestic and overseas. Indeed, different types of financial institutions have different asset-liability structure, risk profile, and therefore together help enhance the completeness of the financial system. For instance, life insurance firms tend to have natural niche in the longer end of the market, and as such, offer opportunities for financing and providing hedging instruments for long-term investment, such as for infrastructure, which is a key driver of Asian economic growth. Many of the longer-term assets have become underlying assets upon which the market for financial engineering thrives-derivatives are used to engineer and structure complex products tailor-made for various market players with different risk-return preferences. While this process brings benefit, it also brings inherent risks that need to be properly managed, as the current turmoil clearly demonstrates.

From the standpoint of the banking sector, the ultimate impact of the crisis will depend both on its scale and duration and on the effectiveness of economic policies in mitigating its effects on households and firms. Along these lines and in the case of monetary policy, in December we extended our pandemic emergency purchase programme until at least March 2022 to ensure that financing conditions are favourable. More recently, the ECB has sought to counter the rise in long-term interest rates observed in recent months, in a setting in which the macroeconomic projections are similar to those in December, with a medium-term inflation forecast some distance off our objective and below that expected before the crisis. Specifically, at the ECB we have stated our intent to use the flexibility of our pandemic emergency purchase programme to increase purchase volumes in the coming months. From the vantage of the macro- and micro-supervisory authorities, we have continued to stress that the use of capital buffers by banks is appropriate in the current situation in order to recognise credit impairment and to continue providing sound credit to economic agents. Our empirical analysis shows that the use of these buffers would give rise to a positive effect on economic growth which, in turn, would ultimately translate into likewise higher solvency levels. 5  One issue worth monitoring in the coming months will, precisely, be the capacity of, or incentives for, banks to use the capital buffers available in the face of risk-materialisation scenarios.