In a number of countries in Asia, the global financial crisis has also sharpened the focus on risks in financial institutions which are more systemically important. This includes having the regulatory reach that extends to institutions outside the formally regulated system. The implementation of global financial reforms has however, also substantially increased the regulatory complexity associated with the proliferation of binding “one-size-fits-all” prescriptions. While these rules mainly aim to address the fundamental weaknesses of the global financial system exposed during the crisis, it is important not to lose sight of other critical elements of sound regulation and supervision. The crisis has underscored the need for judgment to have a greater role in regulation and supervision. The implementation of global reforms is also proceeding at a time of tighter global financial conditions and weaker global growth. While the work of the Basel Committee, now more than two years old, suggests that its effects on economic growth will be modest, the highly dynamic global financial conditions needs to be taken into account in the implementation of the new standards. BIS central bankers’ speeches  3  In addition, in a more interconnected world, building Asia’s resilience to future shocks has also included significant progress in the arrangements to respond to potential threats of a crisis on a regional scale. These arrangements are currently being strengthened in Asia, through regional platforms for cooperation and more developed home-host supervisory arrangements that reflect the wider regional footprint of financial institutions in Asia.

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.